BKP CBLM Core Journalize Transactions

COMPETENCY - BASED LEARNING MATERIALS
Sector:
HEALTH, SOCIAL, AND OTHER COMMUNITY
DEVELOPMENT SERVICES SECTOR
Qualification: BOOKKEEPING NC III

Unit of Competency: Journalize Transactions
Module Title: Journalizing Transactions
Institution:
LUZONIAN CENTER OF EXCELLENCE FOR SCIENCE AND TECHNOLOGY (LCEST) INC
Date Developed:
CBLM for
January 2020
Bookkeeping NC III / Develop Page
and Practice Negotiation Developed by: ARNEL HIMZON 1 of 130
Skills Checked by: LCEST
HOW TO USE THIS COMPETENCY-BASED LEARNING
MATERIALS
Welcome!
The unit of competency, “Journalize Transactions”, contains the knowledge, skills and
attitude required for journalizing transaction. It is one of the CORE competencies of
BOOKKEPPING NC III.
The module, Journalizing Transactions, contains training materials and activities related
to preparing chart of accounts, analyzing documents and preparing journal entry for
you to complete.
In this module, you are required to go through a series of learning activities in order to
complete each learning outcome. In each learning outcome are Information Sheets, Self-
Checks, Task Sheets and Job Sheets. Follow and perform the activities on your own. If
you have you have questions, do not hesitate to ask for assistance from your facilitator.
Remember to:
 Read information sheets and complete the self-checks. Suggested references are
included to supplement the materials provided in this module.
 Perform the Task Sheets and Job Sheets until you are confident that your outputs
conform to the Performance Criteria Checklist that follows the sheets.
 Submit outputs of the Task Sheets to your facilitator for evaluation and recording
in the Accomplishment Chart. Outputs shall serve as your portfolio during the
Institutional Competency Evaluation. When you feel confident that you have had
sufficient practice, ask your trainer to evaluate you. The results of your
assessment will be recorded in your Progress Chart and Accomplishment
Chart.
A Certificate of Achievement will be awarded to you after passing the evaluation.
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LIST OF COMPETENCIES
No. Unit of Competency Module Title Code
1 Journalize Transactions Journalizing transactions HCS412301
2 Post transactions Posting transactions HCS412302
Preparing trial balance

3 Prepare trial balance HCS412303
Prepare financial reports Preparing financial reports

4 HCS412304
Review internal control Reviewing internal control

5 HCS412305
system system
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SUMMARY OF LEARNING OUTCOMES
QUALIFICATION: BOOKKEEPING NC III
UNIT OF COMPETENCY : Journalize Transactions

MODULE TITLE : Journalizing Transactions
MODULE DESCRIPTOR : This module covers the knowledge, skills, and
attitudes in preparing chart of accounts, analyze documents and preparing journal
entries for Single Proprietorship, Partnership and Corporation
NOMINAL DURATION : 138 hours
LEARNING OUTCOMES: Upon completion of this module the students/trainees will be

able to:
LO1. Prepare chart of account
LO2. Analyze documents
LO3. Prepare journal entry
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DETAILS OF LEARNING OUTCOME
LEARNING OUTCOME1 Prepare chart of accounts
CONTENTS:
 Definition and functions of Bookkeeping and Accounting.
 Types of business organization
 Types of business activities
 Basic Accounting Equation
 Basic Financial Statement
ASSESSMENT CRITERIA:
1. List of asset, liability, equity, income, and expense account titles are prepared in
accordance with Generally Accepted Accounting Principles.
2. Chart of Accounts is coded according to industry practice.
CONDITIONS:(Tools, equipment, s/m, references/materials)

The students/trainees must be provided with the following:
 CBLM
 Paper
 Learning Materials
 Pencil
 Eraser
METHODOLOGIES:
 Self-paced/modular
 Discussion
 Practical exercises
ASSESSMENT METHODS:
 Written test
 Practical/performance test
 Interview
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LEARNING EXPERIENCE
LEARNING OUTCOME 1: Prepare Chart of Accounts
Learning Activities Special Instructions
1. Read Information Sheet No. 1.1-1 on Definitions You may clarify with the
and Functions of Bookkeeping and Accounting, facilitator if you have concerns
Forms of Business Organization, and Types of on the lesson.
Business Activities
2. Answer Self Check No. 1.1-1 Compare answers with Answer

Key No. 1.1-1
You must answer all questions

correctly before proceeding to
the next activity.
3. Read Information Sheet 1.1-2 on Basic Financial

Statement

Key No. 1,1-2

the next activity.
5. Read Information Sheet 1.1-3 on Basic Accounting

Equation

Key No. 1,1-3

the next activity.
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7. Perform Task Sheet 1.1-3 Evaluate your work using
Performance Criteria Checklist
1.1-3. When you are ready,
present your work to your
trainer for final evaluation and
recording.
If you have questions about the
task, please ask your trainer
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INFORMATION SHEET: 1.1-1
DEFINITIONS AND FUNCTIONS OF BOOKKEEPING AND ACCOUNTING, FORMS OF
BUSINESS ORGANIZATION, AND TYPES OF BUSINESS ACTIVITIES
LEARNING OBJECTIVE/S:
After reading this information sheet, you should be able to:

 Discuss what accounting and bookkeeping is.
 Compare and contrast the different types of business organization
 Identify the different business activities.
Business is an undertaking or venture for the purpose of making a gain or profit. To

monitor the financial standing of the business, every transaction has to be recorded and
an accounting system is developed.
The succeeding lesson discusses concept of bookkeeping and accounting in relation to

the different forms of business organization and the activities they are engaged in.
Accounting and Bookkeeping
Accounting is the art of recording, classifying, and summarizing in significant manner

and in terms of money, transactions and events which are, in part at least, of a financial
character, and interpreting the result thereof.
The Four Phases Of Accounting
Accounting has four phases, namely Recording, Classifying, Summarizing, and

Interpreting.
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 Recording – This is technically called bookkeeping. In this phase, business
transactions are recorded systematically and chronologically in the proper
accounting books.
 Classifying – This is the phase where items are sorted and grouped. Similar items
are being classified under the same name. The following are the different
ACCOUNTS:
 Asset Accounts
 Liability Accounts
 Capital Accounts or Owner’s Equity Accounts
 Revenue Accounts
 Expense Accounts
 Summarizing – After each accounting period, data recorded are summarized

through financial statements.
 Interpreting – These are the accountant’s interpretation on the financial

statement. This is called Analysis Report that must be submitted together with the
financial reports.
Functions of Accounting
 Recording of financial transactions
The primary function of Accounting is to record the transactions in the journal as

soon as they occur.
 Classifying
After journalizing the transactions, these are classified and recorded in the
ledger separately.
 Summarizing
After recording the transactions in the ledger, these are closed by drawing
balances.
A brief statement is prepared with the balances of the ledger, which is called a
trial balance.
 Finding net results
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The main function of Accounting is not only to record the transactions in books
of accounts but also to determine the net results of a business for a particular
period at the end of that period.
The income statement is prepared with the help of revenue incomes and
expenses mentioned as ledger balances in the trial balance to find out the
operating results of a business organization for a particular period.
So preparation of income statement is treated as one of the important functions

of Accounting.
 Exhibiting financial affairs
Preparation of balance sheet is one of the functions of the special importance of

Accounting. The balance sheet is prepared to exhibit the financial position of an
organization at a particular date.
A picture of assets and liabilities is reflected in the balance sheet, and a clear
conception can be achieved regarding the financial stability of an organization
through it.
 Analyzing financial data
The financial data derived from financial statements are interpreted and
analyzed for different purposes.
From this information, a clear conception is achieved regarding the capability of

repayment of debts, the capability of earning a profit, work efficiency and
transparency, etc. of an organization.
This can be ascertained through ratio- analysis.
 Communicating financial information
Interested parties related to the business organization such as owners,

employees, suppliers, investors, researchers, government, etc. remain eager to
know various details regarding the financial positions of that organization.
One of the primary functions of Accounting is to provide them with information

regularly through various reports.
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Bookkeeping
Bookkeeping is the process of recording daily transactions in a consistent way, and is a

key component to building a financially successful business.
The Four Main Functions of Bookkeeping
 Record Expenses
Recording expense is the most important function of bookkeeping. At its heart

bookkeeping is just financial record keeping. In Fact, the name bookkeeping
drives from the fact that in the old age, accountants used to record business
transactions in a big book thus people started calling it bookkeeping.
Recording transactions is important because business owners need to be able to

know how there spending and earning money. In any business there are a lot of
transactions that take place daily. It’s just not possible to remember all of them
by memory. So it’s crucial to have a good system in place to record all business
transactions that happen.
Another thing to consider is that not only will having this data on business
transactions help you in better running a business, but In most countries it’s also
required by law to keep a record of business transactions for tax purposes.
 Manage Accounts Receivable
Now that your recording all of the business expenses, The next thing to focus on
is the accounts receivable. Remember the accounts receivable is all of the money
that is owed to a business, it’s different from the money that the company has
already received because that is considered revenue.
Managing accounts receivable is important because many businesses do not get

paid on the spot. For example Lawyers, Dentist, Contractors, Auto Mechanics etc
all use invoices to receive payments and these invoices might take up to 90 days
to get paid.
 Manage Accounts Payable.
The Accounts Payable is another main function of bookkeeping. Unlike

receivable, the accounts payable is all of the money that is owed by a business. In
short it’s all of the Bills.
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 Produce Financial Reports
Ask any bookkeeper there most valuable trait, and they’ll tell you their ability to
produce financial reports. The financial reports give a detailed account of how
the business is performing; there are three main reports that every business
needs.
o Balance Sheet
The balance sheet is a collection of all the assets and liabilities of a

business, it’s used to determine how much a business is worth. If a
business owner ever wants to sell his business the first thing a potential
buyers will ask for is the balance sheet.
o Cash Flow Statement
The cash flow statement shows you where all the money is coming from,
so you can focus more on high cash producing projects, while also
showing you areas in your business where your losing money so you can
better manage them.
o The Profit and Loss
The profit and loss statement accumulates all of the expenses and income
for a business. Like the name suggest this statement lets business owners
know if there profitable or not.
Types of Business Organization
A business assumes one of the three forms of organization. The accounting procedure
depend on which form the organization takes.
 Sole Proprietorship. This business organization has a single owner called the
proprietor who generally is also the manager. The owner receives all profits,
absorbs all losses and is solely responsible for all debts of the business.
 Partnership. A partnership is a business owned and operated by two or more

persons who bind themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profit among themselves.
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 Corporation. A corporation is a business owned by its stockholders. It is an
artificial being created by operation of law, having the rights of succession and
the powers, attributes and properties expressly authorized by law or incident to
its existence.
Types of Business Activities
The forms of business organizations above are classified according to the ownership
structure of the business entity. Entities, however, can also be group by the type of
business activities they perform.
 Service. Service companies perform services for a fee. (e.g. accounting and law
firms, dry cleaning establishments)
 Merchandising. Merchandising companies purchase goods that are ready for

sale and then sell these to customers. (e.g. car dealears, clothing stores and
supermarkets)
 Manufacturing. Manufacturing companies buy raw materials; convert them

into products to other companies or to final customers. (e.g. car manufacturer,
steel mills and drug manufacturer)
References: Ballada, Win Lu, Basic Accounting Made Easy1998 Revised Edition,5-6
https://www.iedunote.com/functions-of-accounting
https://accountingforeveryone.com/what-are-bookkeeping-functions/
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SELF-CHECK NO. 1.1-1
Identification. Identify the following. Write your answer on the space before the
number.
_______________________ 1. It is a business owned by its stockholders.
_______________________ 2. It is the art of recording, classifying, and summarizing in
significant manner and in terms of money, transactions and
events which are, in part at least, of a financial character, and
interpreting the result thereof.
_______________________ 3. It is a type of business activity where companies purchase
goods that are ready for sale and then sell these to customers.
_______________________ 4. This business organization has a single owner called the
proprietor who generally is also the manager.
_______________________ 5. It is the process of recording business transactions
systematically and chronologically in the proper accounting
books.
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ANSWER KEY 1.1-1
1. Corporation
2. Accounting
3. Merchandising
4. Sole Proprietorship
5. Bookkeeping
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BASIC FINANCIAL STATEMENT

 Discuss the components of financial statements
 Identify the accounts associated with each financial statement components
Every business organization must have an accounting information system which will
generate accurate financial information needed by the decision-makers in a timely
manner. Financial statements are being prepared to show the financial position of the
business and the result of its operation.
The succeeding lesson will discuss the basic financial statement and the accounts
associated with it.
Basic Financial Statements
 Statement of Financial Position
The balance sheet shows the financial position of the business. It presents the
assets of the business, its liabilities and the equity of the owner in the business.
Assets
Assets are physical things (tangible) or rights (intangible) which have monetary
values and are owned by the business entity. They are economic resources of
business that are expected to be of future benefit. Assets are commonly
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subdivided into two major classifications: current assets and non-current assets.
Current assets are generally those which can be expected to provide benefits to
the business within the normal operating cycle of the business or one year,
whichever is longer. Non-current assets are those which are used to provide the
business entity with benefits over a number of years.
Typical Account Title for Assets
 Current Assets
 Cash – any medium of exchange that a bank will accept at face value.
It includes coins, currency, checks, money orders, bank deposits and
drafts.
 Cash Equivalent – these are short-term, highly liquid investments
which are readily convertible to cash and with original maturities of
three months or less.
 Short-term investments – investments which are readily marketable
and represents temporary investments of fund available for current
operations and are intended to meet working capital requirements.
 Notes Receivable – a notes receivable is a written pledge that the
customer will pay the business a fixed amount of money on a certain
date.
 Accounts Receivable – these are claims against customers arising
from sale of services or goods on credit. This type of receivable offers
less security than a promissory note.
 Inventory – these constitute items of tangible personal property
which are (a) held for sale in the ordinary course of business, (b) in
the process of production for such sale, or (c) to be currently
consumed in the production of goods or services to be available for
sale.
 Prepaid Expenses – these are expenses paid for by the business in
advance. It is an asset because the business avoids having to pay cash
in the future for a specific expense.
 Non-current Assets
 Long-term Investments – these are assets not directly identified with
the operating activities of the company or involved in the sale or
production of goods and services.
 Equipment – these account records the acquisition of office machines,
desk, cars, trucks, file cabinets, and similar items. They are used in the
conduct of business and are not intended for sale in the ordinary
course of business.
 Buildings – included in this account are factories, warehouses, and
office buildings.
 Land – owned and used by the business entity.
 Intangibles – these are relatively long-lived assets without physical
characteristics which value lies in rights, privileges and competitive
advantages, which they give the owner. These include patents,
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copyrights, licenses, franchises, goodwill, trademarks, secret
processes, subscription lists and non-competition agreement.
Liabilities
Liabilities are debts owed to outsiders (creditors). The economic obligations are
often identified by the account titles that include the word “payable.” They are
typically fall into two major groups: Current Liabilities and Long-term
Liabilities. Current liabilities are obligations which are reasonably expected to
be settled through the use of existing current assets or the creation of other
current liabilities within the normal operating cycle or one year, whichever is
longer. Long-term Liabilities are obligations which are payable beyond the
normal operating cycle or one year, whichever is longer or those obligations
which though payable within one year will not be liquidated by existing current
assets.
Common Liability Accounts
 Current Liabilities
 Notes Payable – is like a note receivable but in the reverse sense. In
the case of a note payable, the business entity is the maker of the note;
that is, the business entity is the party who promises to pay the other
party a specified amount of money on a specified future date.
 Accounts Payable – this account represents the reverse relationship
of accounts receivable. By accepting the goods or services, the buyer
agrees to pay for them in the future.
 Accrued Liabilities – Amounts owed to others for unpaid expenses.
 Unearned Revenues – When the business entity receives payment
before providing its customers with goods or services, the amounts
received are recorded in the unearned revenue account.
 Long-term Liabilities
 Mortgage Payable – this account records long-term debt of the
business entity for which the business entity has pledged certain
assets as security to the creditor.
 Bonds Payable – business organizations often obtain substantial
sums of money from lenders to finance the acquisition of equipment
and other needed assets. They obtain the fund by issuing bonds. The
bond is a contract between the issuer and the lender specifying the
terms of repayment and the interest to be charge.
Owner’s Equity
It is the claim held by the owner against the assets of the business after the total
liabilities are deducted
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Common Owner’s Equity account
 Capital – this account is used to record the original and additional
investments of the owner if the business entity. This account title bears
the name of the owner.
 Withdrawals – when the owner of a business entity withdraws cash or
other assets, such are recorded in the drawing or withdrawal account
rather than directly reducing the owner’s equity account,
 Statement of Financial Performance (Income Statement)
Revenues
These are the increases in the owner’s equity as a result of the performance
services or the sales of merchandise by the business.
Common Revenue Accounts
 Service Revenue – revenues earned by performing services for a
customer or client.
 Sales Revenue – revenues earned as a result of sale of merchandise.
Expenses
Expenses are the decrease in the owner’s equity caused by the revenue
generating activities of the business.
Common Expense Accounts
 Cost of Sales – this cost incurred to purchase or to produce the products
sold to customers during the period; also called cost of goods sold.
 Salaries or Wages Expense – includes all payments as a result of an

employer-employee relationship such as salaries or wages, 13th month
pay, cost of living allowances and other related fringe benefits.
 Telecommunications, Electricity, Fuel and Wages Expense – expense
related to use of telecommunications facilities, consumption of electricity,
fuel and water.
 Rent Expense – expense for space, equipment or other asset rentals
 Supplies Expense – expense using supplies in the conduct of daily
business.
 Depreciation Expense – the portion of the cost of a tangible asset
allocated or charged as expense during an accounting period.
 Uncollectible Accounts Expense – the amount of receivables estimated
to be doubtful of collection and charged as expense during an accounting
period.
 Interest Expense – an expense related to use of borrowed funds.
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 Statement of Changes in Capital (Equity)
The Statement of Changes in Capital (or Equity) shows the balance of the capital
account at the beginning of the period, the changes that occurred during the
period, and the ending balance as a result of such changes. Capital is affected by
contributions and withdrawals of owners, income, and expenses.
The title used for this report varies depending upon the form of business
ownership. It is called Statement of Owner's Equity in sole proprietorships,
Statement of Partners' Equity in partnerships and Statement of
Stockholders' Equity in corporations.
 Statement of Cash Flows
The Statement of Cash Flows, or Cash Flow Statement, presents the beginning
balance of cash, the changes that occurred during the period, and the cash
balance at the end of the period as a result of the changes.
The cash flow statement shows the cash inflows and outflows from three
activities: operating, investing, and financing.
Operating activities pertain to transactions that are directly related to the

company's main course of business. Investing activities refer to "where the
company puts its money". These activities include long-term investments,
acquisition of property, plant and equipment; and other transactions related to
non-current assets. Financing activities include transactions in which a
company acquires its funds. These include loans from banks (long-term
liabilities) and contributions from owners
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Instruction: True or False. Write TRUE if the statement is correct otherwise write
False. Write your answer on the space provided.
_______________________ 1. When the business entity receives payment before providing
its customers with goods or services, the amounts received are
recorded in the unearned revenue account.
_______________________ 2. Sales revenues are revenues earned by performing services
for a customer or client.
_______________________ 3. Expenses are the decrease in the owner’s equity caused by the
revenue generating activities of the business.
_______________________ 4. Current assets are those which are used to provide the
business entity with benefits over a number of years.
_______________________ 5. Cash Equivalents are short-term, highly liquid investments
which are readily convertible to cash and with original
maturities of three months or less.
_______________________ 6. Owner’s is the claim held by the outsiders against the assets of
the business after the total liabilities are deducted.
_______________________ 7. The bond is a contract between the issuer and the lender
specifying the terms of repayment and the interest to be
charge.
_______________________ 8. Long-term Liabilities are obligations which are payable
beyond the normal operating cycle or one year, whichever is
longer or those obligations which though payable within one
year will not be liquidated by existing current assets.
_______________________ 9. Interest expense is an expense related to use of borrowed
funds.
_______________________ 10. A notes payable is a written pledge that the customer will pay
the business a fixed amount of money on a certain date.
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ANSWER KEY 1.1-2
1. TRUE
2. FALSE
3. TRUE
4. FALSE
5. TRUE
6. FALSE
7. TRUE
8. TRUE
9. TRUE
10. FALSE
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BASIC ACCOUNTING EQUATION

 Explain the basic accounting equation
 Explain the importance/use of the chart of accounts
 Identify the effects of every transaction to the asset, liability and equity.
Transaction is defined as an exchange of value. In business transaction, there is a value

received and a value parted with. Each transaction has an effect on the accounting
equation (Asset, Liability and Owner’s Equity).
The Account
The basic summary device of accounting is the account. A separate account is
maintained for each item that appears on the balance sheet (assets, liabilities and
owner’s equity) and on the income statement (revenues and expenses). Thus, an
account may be defined as a detailed record of the increases, decreases and balance of
each item that appears in an entity’s financial statements.
The basic form of an account is the “T” account because of its similarity to the letter “T”.
The account has three parts as shown below:
Account Title
Left side or Right side or

Debit side Credit side
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The Chart of Accounts
A listing of all the accounts and their account numbers in the ledger is known as chart of
accounts. The chart is arranged in the financial statement order, that is, assets first
(from current assets to non-current assets), followed by liabilities (from current to non-
current liabilities), owner’s equity, revenues and expenses. The amount should
numbered in a flexible manner to permit indexing and cross-referencing.
When analyzing transactions, the accountant refers to the chart of accounts to identify
the pertinent accounts to be increased or decreased. If an appropriate account title is
not listed in the chart, an additional account may be added.
Presented below is the chart of accounts for the illustration:
Del Mundo Advertising Agency

Chart of Accounts
Balance Sheet Accounts Income Statements Accounts
Assets Revenues
110 Cash 410 Advertising Revenues
120 Accounts Receivable 420 Art Revenues
130 Fees Receivable Expenses
140 Art Supplies 510 Salaries Expense
150 Office Supplies 520 Art Supplies Expense
160 Prepaid Rent 530 Office Supplies Expense
170 Prepaid Insurance 540 Rent Expense
180 Art Equipment 550 Insurance Expense
185 Accumulated Depreciation - Art 560 Electricity Expense
Equipment 570 Telecommunications Expense
190 Office Equipment 580 Depreciation Expense – Art
195 Accumulated Depreciation - Equipment
Office Equipment 590 Depreciation Expense – Office
Liabilities Equipment
210 Notes Payable 600 Interest Expense
220 Accounts Payable
230 Salaries Payable
240 Interest Payable
250 Unearned Art Revenue
Owner’s Equity
310 Del Mundo, Capital
320 Del Mundo, Withdrawal
330 Income Summary
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The Accounting Equation
Financial statements tell us how a business is performing. They are the final product of
the accounting process. The most basic tool of accounting is the accounting equation.
This equation presents the resources of the business and the claims against these
resources.
The accounting equation states that assets must always equal liabilities and owner’s
equity. The basic accounting model is:
Economic Resources Financial Obligations Owner’s Claims on the

Owned by a Business or Debts of a Business Assets of a Business
Note that the assets are on the left side of the equation opposite the liabilities and
owner’s equity. This explains increases and decreases in assets are recorded in the
opposite manner as liabilities and owner’s equity are recorded. The equation also
explains why liabilities and owner’s equity follow the same rules of debit and credit.
The logic of debiting and crediting is related to the accounting equation.
Effects of Transactions
Every accountable event has a dual but self-balancing effect on the

accounting equation. These events may be grouped into nine types of effects
as follows:
Type of Effect Events

 Purchase of an asset on
account
1. Increase in Asset = Increase in Liability  Borrowings from
creditors
 Owner’s investment
2. Increase in Asset = Increase in Owner’s  Render of service
Equity  Sales of
goods/merchandise
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Bookkeeping NC III / Developed by: ARNEL HIMZON 25 of 130
Journalize Transactions
Checked by: LCEST
 Cash purchase of an
3. Increase in Asset = Decrease in Another asset
Asset  Collection of receivables
 Payment of
liability/payables
4. Decrease in Asset = Decrease in Liability  Return of asset
purchased on account
5. Decrease in Assets = Decrease in Owner’s  Owner’s withdrawal for

Equity personal use
 Payment of an expense
6. Increase in Liabilities = Decrease in  Accrual of

Owner’s Equity expense/expense payable
7. Increase in one Liability = Decrease in  Conversion of an account

another Liability payable to note payable
and vice versa
8. Increase in Owner’s Equity = Decrease in  Realization of an

Liabilities Unearned Revenue
9. Increase in one Owner’s Equity =  Unusual event that

Decrease in another Owner’s Equity requires the owner to
invest equity replacing an
asset, such as when a
natural disaster destroys
equipment or inventory
References: Ballada, Win Lu, Basic Accounting Made Easy1998 Revised Edition,23-27,92
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Checked by: LCEST
Instruction: For each transaction, indicate the assets (A), Liabilities (L) or owner’s
equity (OE) increased (+), decreased (-) or did not change (o) by placing the appropriate
sign in the appropriate column.
Transactions A L OE
1. Received cash as additional investment.

2. Purchased supplies on account.
3. Charge customers for service rendered made on
account.
4. Rendered service to cash customers.
5. Paid cash for rent on building.
6. Collected on account receivable in full.
7. Paid cash for supplies
8. Returned supplies purchased on account.
9. Paid cash to settle accounts
10. Paid cash to owner for personal use
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ANSWER KEY 1.1-3
Transactions A L OE
1. Received cash as additional investment. + o +

2. Purchased supplies on account. + + o
3. Charge customers for service rendered made on
+ o +
account.
4. Rendered service to cash customers. + o +
5. Paid cash for rent on building. - o -
6. Collected on account receivable in full. +- o o
7. Paid cash for supplies +- o o
8. Returned supplies purchased on account. - - o
9. Paid cash to settle accounts - - o
10. Paid cash to owner for personal use - o -
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TASK SHEET 1.1-3
Title: Preparing Chart of Accounts
Performance Objective: Given the accounts that will be needed in the ledger, you are
required to develop a chart of account for Tolentino Consulting Services
Supplies / Materials: Pencil, Paper

Equipment:
Procedure:
1. Arrange the following accounts in the order in which they would appear on the
ledger.
Accounts Payable Notes Payable

Accounts Receivable Office Supplies
Building Office Supplies Expense
Cash Tolentino, Withdrawals
Consulting Revenues Prepaid Rent
Equipment Rent Expense
Land Salaries Expense
Miscellaneous Expense Tolentino, Capital
2. Assign each account a number, using a three-digit numbering scheme: the 100
series for assets, 200 series for liabilities, 300 series for owner’s equity, 400
series for revenue and 500 series for expenses. Use the second digit to indicate
specific account within a major category; for example Cash would be account
number 110.
3. Evaluate your answer using the performance criteria checklist then submit your
work to your facilitator.
Note: You may refer to information sheet 1.1-3 for the chart of account format.
Assessment Method:
 Portfolio Analysis
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PERFORMANCE CRITERIA CHECKLIST 1.1-3
Preparing Chart of Accounts
CRITERIA YES NO
Are the accounts classified according its category as Asset, Liabilities, Owner’s
Equity, Revenues and Expense
Are the asset account arranged from current to non-current asset?
Are the liabilities account arranged from current to non-current liabilities?
Is the account number assigned per account following the numbering scheme
stated?
Instructor’s Signature : __________________________

Student’s Signature : __________________________
Date of Performance : __________________________
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LEARNING OUTCOME2 Analyze Documents
CONTENTS:
 Types of Business Documents
 Account Title Selection
1. Documents are gathered, checked and verified in accordance with verification
and validation processes.
2. Account titles are selected in accordance with standard selection processes
CONDITIONS::(Tools, equipment, s/m, references/materials)

 CBLM
 Paper
 Pencil
 Eraser
METHODOLOGIES:
 Discussion
ASSESSMENT METHODS:
 Written test
 Interview
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LEARNING EXPERIENCE
LEARNING OUTCOME 2: Analyze Documents
1. Read Information Sheet 1.2-1 on Analyzing You may clarify with the
Document facilitator if you have concerns
on the lesson

Key No. 1.2-1

the next activity.
3. Perform the Task Sheet No. 1.2-1 on Evaluate your performance using
Analyzing Documents Performance Criteria Check List
No. 1.2-1
Your performance will also be

evaluated by your trainer using
the same Performance Criteria
Checklist
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INFORMATION SHEET 1.2-1
ANALYZING DOCUMENTS
LEARNING OBJECTIVES:
 Explain the steps in analyzing business transactions
 Analyze the different types of business documents
 Select appropriate account title in journalizing the document.
Source documents provide written evidences that transactions have occurred and
contain information about nature and the amounts of transactions. These are the bases
for journal entries.
The following lesson discusses how transaction is analyzed based on the different types
of business documents that serve as bases for journal entries and the account titles used
in journalizing these documents.
Transaction Analysis
The analysis of transactions should follow these four basic steps:
1. Identify the transaction from source documents.

2. Indicate the accounts affected by the transaction.
3. Ascertain whether each account is increased or decreased by the transaction.
4. Using the rules of debit and credit, determine whether to debit or credit the
account to record its increase or decrease.
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Source Documents in Accounting
The source document is the first document that exists relating to a transaction. They
are the only real evidence of a transaction taking place, on a specific day and at a specific
amount. It should generally contain the following:
 The business name and logo

 The date of the transaction
 A description of the transaction
 The specific value of the transaction
Types of Business Document
Here are some of the most common source documents in accounting:
 Invoices are documents listing goods or services provided, as well as their

prices. They are the primary source documents for sales and similar forms of
income. Businesses normally send an invoice together with goods (or once
services have been delivered) so as to indicate the amount of payment required
to be paid to them.
In addition, invoices often indicate when the payment is to be made, the business
banking details, etc.
Invoices thus normally relate to credit transactions and specifically, income on

credit.
 Official Receipts evidences the receipt of cash by the seller or a service

provider. Receipts thus normally relate to payment that has been made by cash
or through a debit or credit card.
 A check (or cheque) is a common form of payment, instructing a bank to

transfer money from one bank account to another.
Where checks are used by a business to make payments, check counterfoils serve
as the source documents.
A check counterfoil is the part of the check kept by the drawer (writer) of the
check as a record of the transaction - a record that the check was written and the
payment was made.
 Payment Confirmations are documents serving as proof that payment has been
made by electronic transfer (payments made through the internet, using a
cellphone, computer or other electronic means).
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Since more and more payments are made online these days, the payment
confirmation is becoming more common as a source document.
 A statement or statement of account is an itemized report showing the amount
owed by one business to another, as well as details of transactions between the
two businesses.
 Credit Memorandum is a form used by the seller to notify the buyer that
account has been decreased due to errors or other factors requiring adjustments
Account Title Selection
From the Chart of Accounts, account title of the account affected by the transaction (as
evidenced by the source document) is selected. Each transaction affects two or more
accounts. The following are the common business transactions and the corresponding
accounts affected:
 Investment
o Asset invested (Cash, Equipment, Land, Building, etc.)
o Capital Account Owner’s Capital, Paid-In Capital)
 Purchase of asset
o Asset Purchased (Supplies, Equipment, Furniture and Fixtures, Building,
Land, etc.)
o Cash (if purchased in cash evidenced with Official Receipts) and/or
Accounts/Notes Payable (if purchased on account evidenced with an
Invoice or a Statement of Account/Billing Statement)
 Service rendering
o Cash (if payment is received after the service is rendered evidenced with
Official Receipt) or Accounts/Notes Receivable (if the service rendered is
not yet paid, sending a Statement of Account/Billing Statement)
o Service Income/Revenue
 Receipt of Billing Statement for services received

o Service Expense Account (Repairs Expense)
o Accounts Payable
 Sales of goods and merchandise

o Cash (for cash sales evidenced with an Official Receipt) or Accounts/Notes
Receivable (for sales on account sending an Invoice or Statement of
Account)
o Sales
 Payment of payables
o Accounts/Notes Payable
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o Cash (evidenced with an Official Receipt)
 Payment Expense
o Expense account (Rent Expense, Salaries Expense, Utilities Expense,
Miscellaneous Expense, etc)
 Collection of Receivables
o Accounts/Notes Receivable
 Owners Withdrawal for personal use

o Owners’ Drawing account (X, Withdawal, X, Drawings)
o Cash
References: Ballada, Win Lu, Basic Accounting Made Easy1998 Revised Edition,82
http://www.accounting-basics-for-students.com/source-documents.html
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SELF-CHECK N0. 1.2-1
ANALYZING DOCUMENTS
Matching Type. Match Column A with Items on Column B. Write the letter of your
answer on the space provided.
Column A Column B
_____1. Official Receipt a. Billed a customer for a service rendered on
_____2. Service Income and account.
Accounts Receivable b. Collected P2,000 from a client for the service
_____3. Check rendered last week.
_____4. Santos, Withdrawal and c. Evidences the receipt of cash by the seller or a
Cash service provider.
_____5. Supplies and Cash d. It is a common form of payment, instructing a
_____6. Rent Expense and Cash bank to transfer money from one bank account to
_____7. Credit Memorandum another.
_____8. Equipment and e. It is a form used by the seller to notify the buyer
Accounts Payable that account has been decreased due to errors or
_____9. Cash and Accounts other factors requiring adjustments.
Receivable f. Mr. Santos with cash for personal use.
_____10. Accounts Payable and g. Paid monthly rental of the office used.
Cash h. Paid P1,000 owed to the supplier.
i. Purchased office equipment on account.
j. Purchased office supplies worth P3,000.
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ANSWER KEY 1.2-1
ANALYZING DOCUMENTS
1. c
2. a
3. d
4. f
5. j
6. g
7. e
8. i
9. b
10. h
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LEARNING OUTCOME 3.1 Prepare Journal Entry for Single Proprietorship
CONTENTS:
 Generally Accepted Accounting Principles
 Accounting Equation
 Journalizing of Single Proprietor account titles
1. Journal entries are prepared in accordance with generally accepted accounting
principles.
2. Debit and credit account titles are determined in accordance with chart of
accounts.
3. Explanation to journal entry is prepared in accordance with the nature of
transaction.

 CBLM
 Calculator
 Journal Paper
 Pencil
 Eraser
METHODOLOGIES:
 Discussion
ASSESSMENT METHODS:
 Written test
 Interview
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LEARNING EXPERIENCE
LEARNING OUTCOME 3.1: Prepare Journal Entry for Single Proprietorship
1. Read Information Sheet 1.3.1-1 on Generally You may clarify with the
Accepted Accounting Principles and facilitator if you have concerns
Accounting Equation on the lesson
2. Answer Self Check No. 1.3.1-1 Compare answers with Answer

Key No. 1.3.1-1

the next activity.
3. Perform the Task Sheet No. 1.3.1-1 on Evaluate your performance using
Accounting Equation Performance Criteria Check List
No. 1.3.1-1

Checklist
4. Read Information Sheet 1.3.1-2 on You may clarify with the

Journalizing of Single Proprietor Account facilitator if you have concerns
Title (Service Concern Business) on the lesson

Key No. 1.3.1-2

the next activity.
6. Perform the Task Sheet No. 1.3.1-2a Evaluate your performance using
Journalizing of Single Proprietor Account Performance Criteria Check List
Title (Service Concern Business) No. 1.3.1-2a
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Checklist
7. Perform the Task Sheet No. 1.3.1-2b Evaluate your performance using
Title (Service Concern Business) No. 1.3.1-2b

Checklist

Journalizing of Single Proprietor Account facilitator if you have concerns
Title (Merchandising Business) on the lesson

Key No. 1.3.1-3

the next activity.
Title (Merchandising Business) No. 1.3.1-3a

Checklist
Title (Merchandising Business) No. 1.3.1-3b

Checklist
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INFORMATION SHEET 1.3.1-1
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND ACCOUNTING EQUATION
 Explain the set of guidelines and procedures that constitute acceptable
accounting practice at a given time.
 Explain the fundamental underlying assumptions in the accounting process
 Express financial transactions in terms of its effect on the accounting equation
Generally Accepted Accounting Principles (GAAP)
Generally Accepted Accounting Principles (GAAP) are set of guidelines and procedures
that constitute acceptable accounting practices at a given time. The following principles
are relied upon by account
 Objectivity Principle. To make accounting records and statements as accurate

and as useful as possible, they are based on the most reliable data. Reliable data
are information that flows from activities documented by objective evidence and
can be confirmed by independent observers. Without this principle, accounting
records are subject to dispute since it would be based on whims and opinions.
 Historical Cost. Assets acquired, as stated by this principle, should be recorded

at their actual or historical cost and not at what the management thinks
they are worth at the reporting date.
 Revenue Recognition Principle. This principle states that revenue is to be

recognized in the accounting period services are rendered or goods are
delivered.
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 Matching Principle. In the accounting period, expenses should be recognized in
which goods and services are used up to produce revenue and not when the
goods and services are paid by the entity.
 Adequate Disclosure. Requires that all relevant information that would affect
user’s understanding and assessment of the accounting entity should be
disclosed in the financial statements.
 Consistency Principle. States that firms should use the same accounting
method from period to period to in order to achieve comparability over time
within the single enterprise. Changes however are permitted provided it is
justifiable and is disclosed in the financial statements.
 Materiality. Financial reporting is only concerned with information that is

significant enough to affect evaluations and decisions.
 Conservatism. This is a principle that requires company accounts to be

prepared with caution and high degrees of verification. All probable losses are
recorded when they are discovered, while gains can only be registered when
they are fully realized.
 Timeliness. Accounting information is communicated early enough to be used

for the economic decision it might influence.
Fundamental Underlying Assumptions
In recording business transactions, accountants rely on certain underlying assumptions

and concepts:
 Entity Concept. This concept states business and the owner or other businesses
are separate entities. Therefore, transactions associated with the business
should be separately recorded from those of its owner or its other businesses. It
requires the use of separate accounting records that exclude completely the
assets and liabilities of any other entity or the owner.
 Stable Monetary Unit Concept. This concept states that you only record
business transactions that can be expressed in terms of a currency. It assumes
that the value of the unit of currency in which you record transactions remains
relatively stable over time. In our case, we use the Philippine peso.
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 Going Concern Concept. It is the assumption that the business entity will
continue operation for the foreseeable future. This concept allows the entity to
value long-term assets such as land, buildings and equipment at cost.
 Periodicity Concept. In accounting, periodicity concept means that the business

entity life can be subdivided into equal time periods (annually, quarterly,
monthly)for reporting purposes. This concept allows user to obtain information
in a timely manner to serve as a basis in making decisions about future business
activities.
The Accounting Equation
Accounting equation is the most basic tool of accounting. It states that assets always
equal liabilities and owner’s equity. A business transaction is the occurrence of an event
or a condition that affects the financial position and can be reliably recorded.
Every financial transaction can be analyzed and expressed in terms of its effect on the
accounting equation. The financial transactions will be analyzed by means of a financial
transaction worksheet which is a form used to analyzed increases and decreases in the
assets, liabilities or owner’s equity of a business entity.
To illustrate:
Lolita Bellen opened a business called Lolita Bellen Dance Studio. During the month of
May 2019, the following financial transactions took place:
May 1 Bellen invested P150,000 from her personal savings account in the business.
When a specific asset, liability or owner’s equity is created by a financial transaction, it

is listed in the financial transaction worksheet using the appropriate accounts. The
worksheet that follows shows the first transaction of Lolita Bellen Dance Studio. The
dates are enclosed in a parenthesis.
Lolita Bellen Dance Studio

Financial Transaction Worksheet
Month of May
Assets = Liabilities + Owner’s

Equity
Cash Bellen,
Capital
(1) P150,000 = P150,000
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Analysis: The dual nature of the transaction is that cash is invested and owner’s equity
is created Bellen, Capital. The effect of this transaction on the accounting equation is as
follows: increase in asset – cash from 0 to P150,000 and increase in owner’s equity
from 0 to P150,000.
May 5 Acquired office equipment costing P70,000.

Month of May

Equity
Cash + Office Bellen,
Equipment Capital
(1) P150,000 = P150,000
(5) (70,000) P70,000
P80,000 + P70,000 = P150,000
P150,000 = P150,000
Analysis: This transaction decreased one asset – cash and increases another asset –
office equipment by P70,000. The decrease in the amount is denoted by a parenthesis.
Note that the sum of the balances on both side of the equation are equal. Equality must
always exist.
May 8 Purchased office supplies on account in the amount of P3,500.

Month of May

Equity
Cash + Office + Office Accounts Bellen,
Supplies Equipment Payable Capital
(1) P150,000 = P150,000
(5) (70,000) P70,000
(8) P3,500 P3,500
P80,000 + P3,500 + P70,000 = P3,500 + P150,000
P153,500 = P153,500
Analysis: This transaction increases both the asset – office supplies and the liability –
accounts payable by P3,500.
May 10 Lolita Bellen Dance Studio collected P25,000 in cash for dance lessons.
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Month of May

Equity
(1) P150,000 = P150,000
(5) (70,000) P70,000
(8) P3,500 P3,500
(10) 25,000 25,000
P105,000 + P3,500 + P70,000 = P3,500 + P175,000
P178,500 = P178,500
Analysis: Revenue is earned for services rendered and it increases the owner’s equity.
The effect of this transaction on the accounting equation is an increase in asset – cash
and an increase in owner’s equity by P25,000.
May 14 Paid Himzon Services for the monthly utilities, P15,000.

Month of May

Equity
(1) P150,000 = P150,000
(5) (70,000) P70,000
(8) P3,500 P3,500
(10) 25,000 25,000
(14) (15,000) (15,000)
P90,000 + P3,500 + P70,000 = P3,500 + P160,000
P163,500 = P163,500
Analysis: Payment of an expense decreases both the asset – cash and the owner’s equity.
May 16 Lolita Bellen billed the clients for the dance lessons she had given for the
month, P50,000.
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Month of May

Equity
Cash + Accounts + Office + Office Accounts Bellen,
Receivable Supplies Equipment Payable Capital
(1) P150,000 = P150,000
(5) (70,000) P70,000
(8) P3,500 P3,500
(10) 25,000 25,000
(14) (15,000) (15,000)
(16) P50,000 50,000
P90,000 + P50,000 + P3,500 + P70,000 = P3,500 + P210,000
P213,500 P213,500
Analysis: In this transaction, service has been rendered but the payment is not yet
received. This revenue transaction resulted in an increase in asset –
Accounts Receivable and an increase in owner’s equity.
May 17 Lolita Bellen made a partial payment of P2,000 for the May 8 purchase of
supplies.

Month of May

Equity
(1) P150,000 = P150,000
(5) (70,000) P70,000
(8) P3,500 P3,500
(10) 25,000 25,000
(14) (15,000) (15,000)
(16) P50,000 50,000
(17) (2,000) (2,000)
P88,000 + P50,000 + P3,500 + P70,000 = P1,500 + P210,000
P211,500 P211,500
Analysis: This transaction decreases both the asset – cash and liability – accounts
payable by P2,000.
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May 20 A check in the amount of P40,000 is received from the clients billed May 16.

Month of May

Equity
(1) P150,000 = P150,000
(5) (70,000) P70,000
(8) P3,500 P3,500
(10) 25,000 25,000
(14) (15,000) (15,000)
(16) P50,000 50,000
(17) (2,000) (2,000)
(20) 40,000 (40,000)
P88,000 + P50,000 + P3,500 + P70,000 = P1,500 + P210,000
P211,500 P211,500
Analysis: Collection of receivables increases the asset – cash and decreases the asset –
accounts receivable.
May 22 Lolita Bellen made a P2,500 withdrawal for personal use.

Month of May

Equity
(1) P150,000 = P150,000
(5) (70,000) P70,000
(8) P3,500 P3,500
(10) 25,000 25,000
(14) (15,000) (15,000)
(16) P50,000 50,000
(17) (2,000) (2,000)
(20) 40,000 (40,000)
(22) (2,500) (2,500)
P85,500 + P50,000 + P3,500 + P70,000 = P1,500 + P207,500
P209,000 P209,000
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Analysis: The transaction decreased both the asset – cash and owner’s equity.
May 25 Lolita Belles paid her dance instructors’ salaries in the amount of P30,000.

Month of May

Equity
(1) P150,000 = P150,000
(5) (70,000) P70,000
(8) P3,500 P3,500
(10) 25,000 25,000
(14) (15,000) (15,000)
(16) P50,000 50,000
(17) (2,000) (2,000)
(20) 40,000 (40,000)
(22) (2,500) (2,500)
(25) (30,000) (30,000)
P55,500 + P50,000 + P3,500 + P70,000 = P1,500 + P177,500
P179,000 P179,000
Analysis: This transaction created and expense – salaries expense that is a deduction to
asset – cash and owner’s equity.
References: Ballada, Win Lu, Basic Accounting Made Easy1998 Revised Edition,7-8, 30
http://www.accounting-basics-for-students.com/source-documents.html
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SELF-CHECK N0. 1.3.1-1
Identification. Identify to which principle or concept the following adheres to. Choose
your answer from the box below.
Revenue Recognition Principle Matching Principle Adequate Disclosure
Consistency Principle Materiality Conservatism
Stable Monetary Unit Concept Timeliness Entity Concept
Going Concern Concept
_______________________ 1. Accounting information is communicated early enough to

be used for the economic decision it might influence.
_______________________ 2. Financial reporting is only concerned with information that
is significant enough to affect evaluations and decisions.
_______________________ 3. In the accounting period, expenses should be recognized in
which goods and services are used up to produce revenue and not when the
goods and services are paid by the entity.
_______________________ 4. It is the assumption that the business entity will continue
operation for the foreseeable future.
_______________________ 5. Requires that all relevant information that would affect
user’s understanding and assessment of the accounting entity should be
disclosed in the financial statements.
_______________________ 6. States that firms should use the same accounting method
from period to period to in order to achieve comparability over time within the
single enterprise.
_______________________ 7. This concept states business and the owner or other
businesses are separate entities.
_______________________ 8. This concept states that you only record business
transactions that can be expressed in terms of a currency. It assumes that the
value of the unit of currency in which you record transactions remains relatively
stable over time
_______________________ 9. This is a principle that requires company accounts to be
prepared with caution and high degrees of verification. All probable losses are
recorded when they are discovered, while gains can only be registered when
they are discovered, while gains can only be registered when they are fully
realized.
_______________________ 10. This principle states that revenue is to be recognized in the
accounting period services are rendered or goods are delivered.
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ANSWER KEY 1.3.1-1
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND ACCOUNTING
EQUATION
1. Timeliness
2. Materiality
3. Matching Principle
4. Going Concern Concept
5. Adequate Disclosure
6. Consistency Principle
7. Entity Concept
8. Stable Monetary Unit Concept
9. Conservatism
10. Revenue Recognition Principle
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TASK SHEET 1.3.1-1
Title: Accounting Equation
Performance Objective: To analyze transactions by showing its effect on the account

equation with the use of Financial Transaction Worksheet.
Supplies / Materials: Paper and Pencil

Equipment:
Procedure:
a. Establish the following accounts in a financial transaction worksheet: Cash;
Accounts Receivable; Supplies; Service Vehicle; Accounts Payable; and Llaneta,
Capital. Record in the worksheet the transactions listed below.
Dec. 1 Elena Llaneta formed Llaneta Signs and Design by investing P400,000.
Dec. 2 Acquired supplies for cash, P73,000.
Dec. 3 Acquired service vehicle in the amount of P210,000 on account.
Dec. 8 Received P60,000 for the signs painted.
Dec. 11 Paid the monthly rental of P25,000.
Dec. 13 Painted Signs for Mendribe Kitchenette on account, P10,000.
Dec. 14 Paid 60,000 for the account on Dec. 3.
Dec. 15 Withdrew P20,000 for personal use.
Dec. 20 Collected from Mendribe Kitchenette, P5,000.
Dec. 27 Paid the salaries of employees for the month, P36,000.
Dec. 30 Paid PLDT for the communication services for the month P1,300.
b. Evaluate your work using the performance criteria checklist then submit it your
facilitator.
Assessment Method:
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PERFORMANCE CRITERIA CHECKLIST 1.3.1-1
CRITERIA YES NO
Did you establish the accounts in the financial transaction worksheet?
Is the equation balance?
Did you get a cash balance of P249,700?
Did you get an Accounts Receivable balance of P5,000?
Did you get a Supplies balance of P73,000?
Did you get a Service Vehicle balance of P210,000?
Did you get an accounts payable balance of P150,000?
Did you get a Llaneta, Capital balance of P387,000?

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JOURNALIZING OF SINGLE PROPRIETOR ACCOUNT TITLE
(SERVICE CONCERN BUSINESS)
 Identify the different transactions involved in a service concern business
 Identify the pro forma journal entry for each transaction
 Journalize transactions following the pro forma entry.
Service Business
A service business is an enterprise that delivers work or services to its customers for a
fee. This business delivers a product that is primarily composed of personal labor and
expertise to deliver the desired work. Example, accounting and law firms, dry cleaning
establishments, barbershop, and the likes.
Journalizing of Single Proprietorship Account Title
Journalizing is the process of recording business transaction in the journal. The

journal is a chronological record of business transactions. A journal entry shows all the
effects of a business transaction in terms of debits and credits. Transactions are
initially recorded in the journal instead of directly recording in the ledger. The journal
is called the book of original entry. The simplest type of journal is called a general
journal.
Format
The standard content of the general journal are as follows:
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1. Date. The year and month are nor rewritten for every entry unless the year or
month changes or a new page is needed.
2. Account Titles and Explanation. The account to be debited is entered at the
extreme left of the first line while the account credited is entered slightly
indented on the next line. A brief description of the transaction is usually made
on the line below the credit. Generally, a blank line is left between the
explanation and the next entry.
3. P.R. (Posting Reference). This will be used when entries are posted, that is, until
the amounts are transferred to the related ledger accounts
4. Debit. The debit amount for each account is entered in this column.
5. Credit. The credit amount for each account is entered in this column.
Date Account Titles and Explanation P.R. Debit Credit
1 2020 Account to Debit

2 Jan. 1 Cash 150,000
3 Gonzales, Capital Account to Credit 150,000
4 Initial Investment
5
Explanation
Note that the rules of double-entry system are observed in each transaction:
1. Two or more accounts are affected by each transaction.

2. The sum of the debits for every transaction equals the sum of the credits.
3. The equality of the accounting equation is always maintained.
 Initial Investment
Jan. 1 Rosita Guamos invested P200,000 in her Cleaning Agency
Analysis Increase in Asset – Increase in Owner’s Equity
Rule Increases in assets are recorded by debits and Increases in owner’s equity
is recorded by a credit to Guamos, Capital.
Entry
Account Titles and Explanation P.R. Debit Credit

Cash 200,000
Guamos, Capital 200,000
Initial Investment
 Note Issued for Cash

Jan. 1 Rosita Guamos issued a promissory note for P50,000 loan from Alcantara
Financing. This will be used as working capital of the agency. The note
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carries a 20% interest per annum. Both the interest and the principal are
payable in full in one year.
Analysis Increase in Asset – Increase in Liability
Rules Increases in assets are recorded by debits and increases in liabilities are
recorded by credits
Entry

Cash 50,000
Notes payable 50,000
Loan from Alcantara Financing
 Prepaid Expenses. These are expenses paid in advance like rentals (Prepaid Rent)
and insurances (Prepaid Insurance). In the asset method of recording prepaid
expenses, these accounts is categorized as asset and will only be regarded as
expense during maturity.
Jan. 2 Paid for two month’s rent for the office space, P10,000.
Analysis Increase in Asset – Decrease in Asset
Rules increases in assets are recorded by a debit to Prepaid Rent and decreases
in asset are recorded by a credit to cash.
Entry

Prepaid Rent 10,000
Cash 10,000
Advance payment of rent
 Purchase of Asset for Cash

Jan. 5 Acquired P5,000 worth of office supplies.
Rules Increases in assets are recorded by debits and decreases in asset are
recorded by credits.
Entry

Office Supplies 5,000
Cash 5,000
 Purchase of Asset on Account

Jan. 6 Purchased computers from ABC Tech Hub on account P45,000.
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Rules Increases in assets are recorded on the debit side and increases in
liabilities are recorded on the credit side.
Entry

Office Equipment 45,000
Accounts Payable 45,000
Purchase of computers
 Purchase of Asset on Account with Down Payment

Jan. 5 Purchased tables and chairs from Corcega Furniture and Supplies,
P45,000. Mrs. Guamos paid P15,000 and the remaining balance payable
in 3 months.
Analysis Increase in Asset – Decrease in Asset, Increase in Liability
Entry

Furniture and Fixture 45,000
Cash 15,000
 Settlement of Accounts Payable

Jan. 8 Paid P30,000 for the account owed to ABC Tech Hub.
Analysis Decrease in Asset – Decrease in Liability
Rules Decreases in liabilities are recorded on the debit side and decreases in
assets are recorded on the credit side.
Entry

Cash 45,000
Payment of accounts
 Revenues Earned and Collected

Jan. 9 Performed cleaning services to various customers and collected P10,000.
Rules Increases in assets are recorded on the debit side and increases on
owner’s equity are recorded by a credit to Service Income
Entry
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Cash 10,000
Service Income 10,000
Render of service
 Revenues Earned but Collected Partially

Jan. 10 Performed cleaning services to ABC Corporation. ABC Corporation
initially paid P10,000 with the balance of P10,000 to be settled at the end
of the month.
Entry

Cash 10,000
Accounts Receivable 10,000
Render of service
 Unearned Revenues Collected. Unearned revenues are considered a liability until

the service is rendered.
Jan. 11 Received P15,000 from XYZ Company as advance payment to cleaning
service to be rendered the following week.
Entry

Cash 15,000
Unearned Service Income 15,000
Advance payment from XYZ Corp
When the service is rendered the journal entry will be like this:

Unearned Service Income 15,000
Collection from customers
 Revenues Earned on Account

Jan. 13 Billed Bellen Dance Studio for cleaning services rendered, P15,000.
Analysis Increase in Asset – Increase in Owner’s equity
Entry
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Render of Service
 Collection of Receivables
Jan. 15 Collected P15,000 from Bellen Dance Studio for the cleaning service
rendered last January 13.
Entry

Cash 15,000
Collection of Receivables
 Withdrawal by Owner
Jan. 15 Rosita Guamos withdraw P 15,000 from the business for personal use.
Analysis Decreases in Asset – Decrease in Owner’s Equity
Entry

Guamos, Drawings 15,000
Cash 15,000
Owner’s withdrawals
 Expenses Incurred and Paid

Jan. 15 Paid the salaries of employees, P45,000
Analysis Decrease in Asset – Decrease in Owner’s Equity
Entry

Salaries Expense 45,000
Cash 45,000
Payment of salaries
 Expenses Incurred but Unpaid

Jan. 18 Receive the telephone bill from PLDT P1,300.
Analysis Increase in Liability – Decrease in Owner’s Equity
Entry
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Telecommunications Expense 1,300
Telecom services
To illustrate further, let us consider the case of Mandreza Plumbing. Dexter Mandreza
opened his plumbing services, Mandreza Plumbing and began the operation on July 1,
2019. The following transactions were completed during the month:
July 1 Withdrew from his personal savings account, P80,000 to open a new account in
the name of Mandreza Plumbing.
2 Purchased service vehicle costing P120,000. A payment of P25,000 and a note
payable given for the 95,000 balance.
4 Paid the month’s rent, P 8,000.
5 Acquired plumbing supplies on account P15,000.
7 Paid the three months advertising and recorded it as Prepaid Advertising in the
amount of 7,500.
9 Received P19,000 cash for plumbing services rendered.
10 Acquired additional plumbing supplies, P9,000.
12 Paid the salaries of employees 12,000.
13 Billed the customer for plumbing services rendered, P45,000
15 Paid P5,000 for the amount owed on the July 5 transaction.
17 Paid the P5,200 miscellaneous expense.
19 Collected P 25,000 from the customer on the July 13 transaction.
22 Withdrew from the business P15,500
24 Paid the salaries, P 15,000.
25 Paid the first installment of the note payable, P5,000.
26 Paid the telephone expense P1,300.
28 Billed Nodado Company for plumbing services rendered, 25,000.
30 Received P20,000 for plumbing services rendered.
Required: Journalize the above transactions using the following accounts

110 Cash 310 Mandreza, Capital
120 Accounts Receivable 320 Mandreza, Withdrawals
130 Plumbing Supplies 410 Plumbing Revenues
140 Prepaid Advertising 510 Salaries Expense
150 Service Vehicle 520 Rent Expense
210 Accounts Payable 530 Telephone Expense
220 Notes Payable 540 Miscellaneous Expense
The following illustrates the journal entry of the above transactions.
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Page: 1
Date
2020
1 Jul. 1 Cash P 80,000
2 Mandreza, Capital P 80,000
4
5 2 Service Vehicle 120,000
6 Cash 25,000
7 Notes Payable 95,000
8 Purchase of service vehicle
9
10 4 Rent Expense 8,000
11 Cash 8,000
12 Payment of rent
13
14 5 Plumbing Supplies 15,000
15 Accounts Payable 15,000
16 Purchase of supplies
17
18 7 Prepaid Advertising 7,500
19 Cash 7,500
20 Payment of Ads
21
22 9 Cash 19,000
23 Plumbing Revenues 19,000
24 Plumbing services rendered
25
26 10 Plumbing Supplies 9,000
27 Cash 9,000
28 Purchase of plumbing supplies
29
30 12 Salaries Expense 12,000
31 Cash 12,000
32 Payment of salaries
33
34 13 Accounts Receivable 45,000
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Page: 2
Date
2020
1 Jul 15 Accounts Payable P 5,000
2 Cash P 5,000
3 Payment of payables
4
5 17 Miscellaneous Expense 5,200
6 Cash 5,200
7 Payment of Misc. Expense
8
9 19 Cash 25,000
10 Accounts Receivable 25,000
11 Collection of Receivables
12
13 22 Mandreza, Withdrawals 15,500
14 Cash 15,500
15 Owner’s drawings
16
17 24 Salaries Expense 15,000
18 Cash 15,0000
20
21 25 Notes Payable 5,000
22 Cash 5,000
23 Payment of notes payable
24
25 26 Telephone Expense 1,300
26 Cash 1,300
27 Payment of telephone bill
28
29 28 Accounts Receivable 25,000
32
33 30 Cash 20,000
36
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Note: In every page of the journal, the first debit and credit amount entry should have a
currency (peso) sign. Page number of the journal is also indicated. This will serve as
posting reference at the ledger.
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Instruction: For each transaction, indicate the account to be debited and the account to
be credited by placing the letter representing the account in the appropriate column.
Account Title Transaction Debit Credit

a. Accounts Payable 1. Invested cash in the firm
b. Capital 2. Paid rent for the month
c. Cash 3. Received cash for services
d. Withdrawals 4. Paid salaries
e. Equipment 5. Bought equipment on account
f. Fees Income 6. Paid ½ balance on equipment
g. Notes Payable 7. Bought supplies on account
h. Rent Expense 8. Borrowed money from the bank giving
a note in exchange
i. Salaries Expense 9. Billed customer for service rendered
j. Supplies 10. Withdrew cash for personal use
k. Accounts receivable
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ANSWER KEY 1.3.1-2
Account Title Transaction Debit Credit

a. Accounts Payable 1. Invested cash in the firm c b
b. Capital 2. Paid rent for the month h c
c. Cash 3. Received cash for services c f
d. Withdrawals 4. Paid salaries i c
e. Equipment 5. Bought equipment on account e a
f. Fees Income 6. Paid ½ balance on equipment a c
g. Notes Payable 7. Bought supplies on account j a
h. Rent Expense 8. Borrowed money from the bank giving c h
a note in exchange
i. Salaries Expense 9. Billed customer for service rendered k c
j. Supplies 10. Withdrew cash for personal use d c
k. Accounts receivable
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TASK SHEET 1.3.1-2a
Title: Journalizing of Single Proprietor Account Title (Service Concern Business)
Performance Objective: To journalize transactions for Tindoc Cleaning Services.
Supplies / Materials: 2 Column Journal and Pencil

Equipment: Calculator
Procedure:
a. Analyze the transactions below:
Herlinda Tindoc established a cleaning service business, Tindoc Cleaning

Services. The transactions for the October 2019, the first month of the business
are as follows:
Oct. 1 Deposited P 90,000 cash in the bank in the name of the business.
Oct. 2 Acquired cleaning equipment on account, P25,000.
Oct. 3 Acquired cleaning supplies on account, P20,600.
Oct. 4 Acquired a second-hand service vehicle costing P80,000 to be used in
the business paying P20,000 and financing the remaining balance by
issuing a notes payable.
Oct. 5 Paid the office space rent for the month, P7,500.
Oct. 7 Received P41,500 cash for cleaning services rendered to various
customers.
Oct. 9 Paid for the newspaper advertisement P2,300.
Oct. 10 Paid for the insurance for the next 6 months, P7,200.
Oct. 12 Paid P10,500 for the account on Oct. 2.
Oct. 13 Paid the miscellaneous expenses, P3,200.
Oct. 15 Billed customers for cleaning services rendered, P23,600.
Oct. 16 Paid P6,000 for the account in Oct. 3 transaction.
Oct. 18 Paid the salaries P10,500.
Oct. 21 Received P10,200 from customers billed on Oct. 15.
Oct. 23 Paid the amount due on the note payable, P5,000.
Oct. 25 Paid the salaries P10,500.
Oct. 27 Paid the telephone expense, P900.
Oct, 29 Withdrew P15,000 for personal use.
Oct. 29 Billed customers P35,600 for cleaning services rendered
b. Journalize the above transaction using the following accounts.
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Acct. Acct. Account
Account
No. No.
110 Cash 310 Tindoc, Capital
120 Accounts Receivable 320 Tindoc, Withdrawals
130 Cleaning Supplies 410 Cleaning Revenues
140 Prepaid Insurance 510 Salaries Expense
150 Cleaning Equipment 520 Rent Expense
160 Service Vehicle 530 Advertising Expense
210 Accounts Payable 540 Telephone Expense
220 Notes Payable 550 Miscellaneous Expense
c. Evaluate your work using the performance criteria checklist then submit it to
your facilitator.
Assessment Method:
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PERFORMANCE CRITERIA CHECKLIST 1.3.1-2a
CRITERIA YES NO
Did you analyze the transactions properly?
Did you journalize transactions in accordance with the generally accepted

accounting principles?
Are the debit and credit determined in accordance with the chart of
account?
Did you prepare an explanation to journal entry in accordance with the

nature of transaction?

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TASK SHEET 1.3.1-2b
Title: Journalizing of Single Proprietor Account Title (Service Concern Business)
Performance Objective: To journalize transactions for Emelinda De Guia, CPA.

Procedure:
Emelinda De Guia established her own accounting practice after working with a
large accounting firm for 5 years. The following transaction during August 2019
were completed.
Aug. 2 Transferred P100,000 cash from her personal savings account to an

account in the name of the business: Emelinda De Guia, CPA.
Aug. 4 Purchased office supplies from Ang Office and School Supplies, P25,200.
Aug. 5 Acquired office equipment on account to Caidoy Furniture and Supplies,
P45,000.
Aug. 7 Sent a bill to Romanca Enterprise P27,000 for the accounting services
performed.
Aug. 8 Paid P5,000 to Caidoy Furniture and Supplies on account.
Aug. 9 Paid P20,100 for the accounting and tax books for use in the practice.
Aug. 11 Acquired a condominium unit for the accounting practice, P385,000. A
down payment was made, P45,000 and issued a note payable for the
P340,000 balance.
Aug. 13 Paid salaries, P15,000.
Aug. 14 Received P15,000 from Romance Enterprise, billed on August 7.
Aug. 16 Received of P16,200 for accounting service rendered for the month.
Aug. 18 Paid telephone expense, P1,300.
Aug. 20 Withdrew P9,200 for personal use.
Aug. 21 Acquired office supplies on account to Ang Office and School Supplies,
P6,200.
Aug. 24 Paid Laguna Institute of Certified Public Accountant P6,000 for
professional dues.
Aug. 25 Paid salaries, P15,000.
Aug. 27 Paid P3,500 rent on an office copying machine
Aug. 28 Billed Dagami Enterprises P32,000 for accounting services rendered.
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Acct. Acct. Account
Account
No. No.
110 Cash 310 De Guia, Capital
120 Accounts Receivable 320 De Guia, Withdrawals
130 Office Supplies 410 Accounting Revenues
140 Office Condominium 510 Salaries Expense
150 Office Equipment 520 Rent Expense
160 Accounting Library 530 Telephone Expense
210 Accounts Payable 540 Professional Dues Expense
220 Notes Payable
your facilitator.
Assessment Method:
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PERFORMANCE CRITERIA CHECKLIST 1.3.1-2b
CRITERIA YES NO

account?


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(MERCHANDISING BUSINESS)
 Identify the different transactions involved in a merchandising business
 Identify the pro forma journal entry for each transaction
 Journalize transactions following the pro forma entry.
Merchandising Business
A merchandising business involves buying of finished goods or products and reselling

them at a higher price to make a gain or profit. The merchandising entity purchases
inventory, sells the inventory and uses the cash to purchase more inventory – and the
cycle continues.
Merchandise Inventory
The inventory of the merchandising entity consists of goods purchased for resale. For a
office and school supplies store, inventory be made up of notebooks, bond papers, pens,
and other items. For a boutique, it would be, pants, shirts, dresses.
There are two systems available to merchandising entities to record events related to
merchandise inventory.
 Periodic Inventory System
The periodic inventory system is primarily used by businesses that sell relatively
inexpensive goods and that are not yet using computerized scanning systems to
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analyze goods sold. A characteristic of the periodic inventory system is that no
entries are made to the inventory account as the merchandise is bought and sold.
When goods are purchased, a separate set of accounts – purchases, purchase
discounts, purchase returns and allowances, and transportation in – is used to
accumulate information on the net cost of the purchases. Only at the end of the
period, when the inventory is counted, will entries to be made to the inventory
account to establish its proper balance.
 Perpetual Inventory System
The perpetual inventory system is an alternative to the periodic inventory

system. Under the perpetual inventory system, the inventory account is
continuously updated. Perpetually updating the inventory account requires that
at the time of purchase, merchandise acquisition be recorded as debits to the
inventory account. At the time of sale, the cost of goods sold is determined and
recorded by a debit to the cost of goods sold account and credit to the inventory
account. With perpetual inventory system, both the inventory and the cost of
goods sold accounts receive entries throughout the accounting period.
Journalizing of Single Proprietorship Account Title
 Purchase of Merchandise
Jan. 1 Purchased merchandise from Ang Enterprises, P7,000.
Entry – Periodic Inventory System

Purchases 7,000
Cash 7,000
Purchase of merchandise
Entry – Perpetual Inventory System

Merchandise Inventory 7,000
Cash 7,000
Jan. 2 Purchased merchandise from Ang Enterprises, P7,000. Terms: 2/10,

n/30.
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Purchases 7,000

Cash Discounts are sometimes given by some businesses to encourage prompt

payment. It is designated by such notation as “2/10” which means the buyer may
avail a 2% discount if the invoice is paid within 10 days. The period covered by the
discount, in this case – 10 days, is called the discount period. “n/30” means that
account has to be paid within 30 days with no cash discount.
Cash discount are call purchase discount from the buyer’s viewpoint and sales
discount from the seller’s viewpoint.
 Payment of Payables Within the Discount Period

Jan. 9 Paid the full account in January 2 transaction.

Cash 6860
Purchase Discount 140
Payment of payables

Cash 6860
Merchandise Inventory 140
Payment of payables
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Note: Purchase discount is only given if the account is paid in full within the
discount period. For partial settlement of the account (periodic or perpetual
inventory system), Debit the amount paid to Accounts Payable and credit the same
amount to cash. Before applying the discount, deduct from the accounts payable the
amount return of goods and the amount of partial settlement if any.
For example: On January 9, paid the full account in January 2 transaction (within the
discount period). Assume that prior to this date of payment, a return of defective
goods and a partial payment has been made in the amount of P500 and P2,000,
respectively.

Cash 4,410
Purchase Discount 90
Payment of payables

Cash 4,410
Merchandise Inventory 90
Payment of payables
[7,000 – (500+2,000)] = 4500
 Payment of Payables Beyond Discount Period

Jan. 14 Paid the full account in January 2 transaction.
Entry

Cash 7,000
Note: The entry is the same for both the periodic and perpetual inventory system.
Purchase returns and partial settlement must also be deducted to the accounts
payable prior to payment if any.
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 Purchase Returns. For returns of merchandise, the seller will normally give a cash
refund to the buyer if the transaction is a cash purchase. Otherwise, the seller sends
a credit memorandum informing the buyer that amount of the returns goods have
been deducted from their collectibles.
Cash Refund
Jan. 5 Received a cash refund of P1000 for the defective goods returned.

Cash 1,000
Purchase Returns and Allowances 1,000
Returns of merchandise

Cash 1,000
Credit Memorandum
Jan. 5 Received a credit memo for the defective goods returned, P1000/
returned P1,000 worth of defective goods purchased on account.

Purchase Returns and Allowances 1,000

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 Sales of Merchandise
Jan. 8 Sold P15,000 worth of merchandise to various customers. The cost of
goods sold is P10,000. (Note: Cost of goods amount is unnecessary in
recording for periodic inventory system.)

Cash 15,000
Sales 15,000
Sales of merchandise

Cash 15,000
Sales 15,000
Cost of Goods Sold 10,000
Jan. 9 Sold P15,000 worth of merchandise to Landicho Trading. Terms: 2/10,

n/eom. The cost of goods sold is P10,000. (Note: Cost of goods amount is
unnecessary in recording for periodic inventory system. eom – end of
the month)

Sales 15,000

Sales 15,000
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Jan. 10 Sold P15,000 worth of merchandise to Alcantara Trading. Alcantara
Trading paid P4,000 and issued a promissory note for the remaining
balance to be paid before the end of the month. The cost of goods sold is
P10,000. (Note: Cost of goods amount is unnecessary in recording for
periodic inventory system)

Cash 4,000
Notes Receivable 11,000
Sales 15,000

Cash 4,000
Notes Receivable 11,000
Sales 15,000
 Collection of Receivables Within the Discount Period

Jan. 16 Collected the full amount from Landicho Trading for January 9 account.
Entry – Periodic Inventory System or Perpetual Inventory

Cash 14,700
Sales Discount 300
 Collection of Receivables beyond the Discount Period

Jan. 16 Collected the full amount from Landicho Trading for January 9 account.

Cash 15,000
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Note: Sales returns amount and initial collection has to be deducted from the
receivable/collectible amount.
 Sales Returns
Jan. 11 Made a cash refund to a customer for the defective goods returned, P500

Sales Returns and Allowances 500
Cash 500
Payment of payables
Jan. 11 Sent a credit memo to a customer for the defective goods returned, P500

Sales Returns and Allowances 500
Accounts Receivable 500
Payment of payables
 Transportation Expense. This is the cost incurred by the buyer or the seller for the
purchase of sales of goods. Transportation In or Freight In is the account used by
the buyer to record the transportation expense in periodic inventory system while
in perpetual inventory system, Merchandise Inventory account is debited. On the
part of the seller, it is Transportation Out or Freight Out.
Jan. 6 Paid XYZ Truckings for the transportation cost of the merchandise
purchased, P1000.

Freight In 1,000
Cash 1,000
Payment of freight charges

Cash 1,000
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Jan. 6 Paid XYZ Truckings for the transportation cost of the merchandise sold,
P1000.
Entry – Periodic Inventory System or Perpetual Inventory System

Freight Out 1,000
Cash 1,000
The following shows which party – the buyer or the seller - shoulders the
transportation cost and pays the shipper for various freight terms:
Who Shoulders the Who Pays the

Freight Terms Shipper?
Transportation Costs?
Seller Seller
FOB Destination, Freight Prepaid
Buyer Buyer
FOB Shipping Point, Freight Collect
Seller Buyer
FOB Destination, Freight Collect
Buyer Seller
FOB Shipping Point, Freight Prepaid
Jan. 15 Purchased Merchandise on account P 20,000. The cost of goods sold is

15000. Transportation Expense, P 1000. Terms: 2/10, FOB Destination,
Freight Prepaid.
Entry
Buyer (no freight charges)
Periodic Perpetual
Purchases 20,000 Merchandise Inventory 20,000
Accounts Payable 20,000 Accounts Payable 20,000
Purchase of merchandise Purchase of merchandise
Seller
Accounts Receivable 20,000 Accounts Receivable 20,000
Freight Out 1,000 Freight Out 1,000
Sales 20,000 Sales 20,000
Cash 1,000 Cash 1,000
Sales of merchandise Cost of Goods Sold 15,000
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15000. Transportation Expense, P 1000. Terms: 2/10, FOB Destination,
Freight Collect.
Entry
Buyer (no freight charges)
Periodic Perpetual
Accounts Payable 19,000 Accounts Payable 19,000
Cash 1,000 Cash 1,000
Purchase of merchandise Purchase of merchandise
Seller
Freight Out 1,000 Freight Out 1,000
Sale 20,000 Sale 20,000

15000. Transportation Expense, P 1000. Terms: 2/10, FOB Shipping
Point, Freight Prepaid.
Entry
Buyer
Periodic Perpetual
Purchases 20,000
Freight In 1,000
Seller (no freight charges)
Sale 20,000 Sale 20,000
Cash 1,000 Cash 1,000

15000. Transportation Expense, P 1000. Terms: 2/10, FOB Shipping
Point, Freight Collect.
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Entry
Buyer
Periodic Perpetual
Freight In 1,000 Accounts Payable 20,000
Accounts Payable 20,000 Cash 1,000
Cash 1,000 Purchase of merchandise
Seller (no freight charges)
Sale 20,000 Sale 20,000
The following examples illustrate the journal entries using the periodic inventory
system of Ang Infants Wear and Accessories during the first month of its operation.
Aug 1 Lorna Ang invested P250,000 to form Ang Infants Wear and Accessories, a store
that sells clothing and accessories for infants and children below 5 years old.
2 Purchased a second-hand service vehicle costing P100,000. A payment of
P25,000 and issued a note payable for the 75,000 balance.
4 Paid the store’s monthly rental of the, P 8,000.
5 Bought merchandise on account P75,000 from Manuel Clothing.
6 Paid the transportation cost, P1,000 for the August 5 purchase.
7 Bought P20,000 worth of supplies from Linda Enterprises.
9 Received a credit memo from Manuel Clothing for the defective goods returned,
P1,500.
10 Sold merchandise to various customers, P29,500.
11 Give a P500 cash refund to a customer for goods returned.
11 Sold goods to Malong Boutique, P15,000. Terms: 2/10, n/30.
12 Paid P700 transportation cost of the August 11 transaction.
14 Sold goods to various customers, P31,000.
16 Purchased merchandise to Tanauan Co. P45,000.
19 Paid Manuel Clothing, P25,000 on account.
20 Collected the full account from Malong Boutique.
21 Purchase goods from Deloria Infant Supplies P30,000. Terms 2/10,n/30
22 Lorna Ang withdrew P5000 from the business for personal use.
23 Paid the utilities expense, P3,000.
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25 Paid the salary of employee, P6,000.
26 Paid the account to Deloria Infant Supplies in full.
110 Cash 420 Sales Returns and Allowances

120 Accounts Receivable 430 Sales Discount
130 Merchandise Inventory 510 Purchases
140 Supplies 520 Purchase Returns and Allowances
150 Service Vehicle 530 Purchase Discount
210 Accounts Payable 540 Freight In
220 Notes Payable 550 Freight Out
310 Ang, Capital 560 Salaries Expense
320 Ang, Withdrawals 570 Rent Expense
330 Income Summary 580 Utilities Expense
410 Sales 590 Cost of Goods Sold
The following illustrates the journal entry of the above transactions using periodic
inventory system.
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Date
2019
1 Aug.1 Cash P 250,000
2 Ang, Capital P 250,000
4
6 Cash 25,000
9
11 Cash 8,000
12 Payment of rent
13
14 5 Purchases P 75,000
15 Accounts Payable P 75,000
16 Purchase of goods
17
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Date
2019
1 6 Freight In P 1,000
2 Cash P 1,000
3 Payment of freight charges
4
5 7 Supplies 20,000
6 Cash 20,000
8
9 9 Accounts Payable 1,500
10 Purchase Returns and Allowances 1,500
11 Returns of goods
12
13 10 Cash 29,500
14 Sales 29,500
15 Sales of goods
16
17 11 Sales Return and Allowances 500
18 Cash 500
19 Returns of goods
20
21 Accounts Receivable P 15,000
22 Sales P 15,000
23 Sales of goods
24
25 12 Freight Out 700
26 Cash 700
28
29 14 Cash 31,000
30 Sales 31,000
31 Sales of goods
32
33 16 Purchases 45,000
34 Cash 45,000
36
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Date
2019
1 19 Accounts Payable P 25,000
2 Cash P 25,000
4
5 20 Cash 14,700
6 Sales Discount 300
7 Accounts receivable 15,000
8 Collection of receivables
9
10 21 Purchases 30,000
13
14 22 Ang, Drawings 5,000
15 Cash 5,000
16 Owner’s withdrawal
17
18 23 Utilities Expense 3,000
19 Cash 3,000
20 Payment of utilities
21
22 25 Salaries Expense P 6,000
23 Cash P 6,000
25
27 Cash 24,500
28 Purchase Discount 500
30
31
32
33
34
35
36
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The following examples illustrate the journal entries using the perpetual inventory
system of Ang Infants Wear and Accessories during the first month of its operation.
Aug 1 Lorna Ang invested P250,000 to form Ang Infants Wear and Accessories, a store
that sells clothing and accessories for infants and children below 5 years old.
2 Purchased a second-hand service vehicle costing P100,000. A payment of
P25,000 and issued a note payable for the 75,000 balance.
4 Paid the store’s monthly rental of the, P 8,000.
5 Bought merchandise on account P75,000 from Manuel Clothing.
6 Paid the transportation cost, P1,000 for the August 5 purchase.
7 Bought P20,000 worth of supplies from Linda Enterprises.
9 Received a credit memo from Manuel Clothing for the defective goods returned,
P1,500.
10 Sold merchandise to various customers, P29,500. The cost of goods sold is
P17,700.
11 Give a P500 cash refund to a customer for goods returned.
11 Sold P9,000 worth of goods to Malong Boutique for P15,000. Terms: 2/10,
n/30.
12 Paid P700 transportation cost of the August 11 transaction.
14 Sold goods to various customers, P31,000. The cost of goods is P18,600.
16 Purchased merchandise to Tanauan Co. P45,000.
19 Paid Manuel Clothing, P25,000 on account.
20 Collected the full account from Malong Boutique.
21 Purchase goods from Deloria Infant Supplies P30,000. Terms 2/10,n/30
22 Lorna Ang withdrew P5000 from the business for personal use.
23 Paid the utilities expense, P3,000.
25 Paid the salary of employee, P6,000.
26 Paid the account to Deloria Infant Supplies in full.
110 Cash 330 Income Summary

120 Accounts Receivable 410 Sales
130 Merchandise Inventory 420 Sales Returns and Allowances
140 Supplies 430 Sales Discount
150 Service Vehicle 510 Freight Out
210 Accounts Payable 520 Salaries Expense
220 Notes Payable 530 Rent Expense
310 Ang, Capital 540 Utilities Expense
320 Ang, Withdrawals 550 Cost of Goods Sold
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The following illustrates the journal entry of the above transactions using perpetual
inventory system.
Page: 1
Date
2019
1 Aug.1 Cash P 250,000
2 Ang, Capital P 250,000
4
6 Cash 25,000
9
11 Cash 8,000
12 Payment of rent
13
14 5 Merchandise Inventory 75,000
17
19 Cash 1,000
21
22 7 Supplies 20,000
23 Cash 20,000
25
27 Merchandise Inventory 1,500
28 Returns of goods
29
30 10 Cash 29,500
31 Sales 29,500
32 Cost of Goods sold 17,700
34 Sales of goods
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Date
2019
1 Aug11 Sales Return and Allowances 500
2 Cash 500
3 Returns of goods
4
5 Accounts Receivable P 15,000
6 Sales P 15,000
9 Sales of goods
10
11 12 Freight Out 700
12 Cash 700
14
15 14 Cash 31,000
16 Sales 31,000
19 Sales of goods
20
22 Cash 45,000
25
26 19 Accounts Payable P 25,000
27 Cash P 25,000
29
30 20 Cash 14,700
31 Sales Discount 300
32 Accounts receivable 15,000
33 Collection of receivables
34
35
36
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Date
2019
1 Aug 21 Merchandise Inventory 30,000
4
5 22 Ang, Drawings 5,000
6 Cash 5,000
7 Owner’s withdrawal
8
9 23 Utilities Expense 3,000
10 Cash 3,000
11 Payment of utilities
12
13 25 Salaries Expense P 6,000
14 Cash P 6,000
16
18 Cash 24,500
19 Merchandise inventory 500
21
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Multiple Choice: Encircle the letter of the correct answer.

1. In perpetual inventory system, the cash purchase of merchandise is recorded as,
a. Debit to Purchases and credit to Cash
b. Debit to Cash and Credit to Purchases
c. Debit to Merchandise Inventory and credit to Cash
d. Debit to Cash and Credit to Merchandise Inventory
2. A buyer received and invoice for P6,000 dated July 11. If the term is 2/10, n/30 and
the buyer paid the invoice with the discount period, how much will the buyer pay?
a. P6,000
b. 5,880
c. 4,800
d. 120
3. When the buyer returns defective goods, what document will the seller issues?
a. Credit Memorandum
b. Debit Memorandum
c. Sales Invoice
d. Official Receipt
4. Which account will be debited by the buyer if the Term is FOB Destination, Freight
Prepaid?
a. Freight Out
b. Freight In
c. Transportation Expense
d. None of the above
5. In September 18, the company sold P15,000 worth of merchandise, terms: 2/10,
n/30. The following day, a credit memorandum was sent to recognize the returns of
merchandise, P500. If the account was paid within the discount period, how much
discount will the buyer get?
a. 300
b. 290
c. 14,700
d. 14,710
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ANSWER KEY 1.3.1-3
1. c
2. b
3. a
4. d
5. b
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TASK SHEET 1.3.1-3a
Title: Journalizing of Single Proprietor Account Title (Merchandising Business)
Performance Objective: To journalize transactions for Dalangpan General

Merchandise using the periodic inventory system.

Procedure:
On September 1, 2019, Allan Dalangpan established a business, Dalangpan

General Merchandise by investing P150,000. The transactions for the
September 2019, the first month of the business are as follows:
Sept. 2 Acquired display racks on account, P25,000.

3 Paid for the month’s rent of the store P15,000.
4 Purchased merchandise from Repizo Trading, P75,000.
5 Paid the transportation cost for the September 2 purchase.
5 Received the P100,000 loan from the bank. Mr. Dalangpan promised to
pay the principal with 4% interest after one year.
6 Purchased supplies from Infante Merchandise, P15,000.
7 Sold merchandise to various customers P35,000.
8 Acquired merchandise from Repizo Trading P45,000 on account.
Terms: 2/10, n/30.
9 Sold merchandise to Nena Delos Santos, P30,000 on account. The
transportation cost is P800. Terms: 2/10, n/30, FOB Destination,
Freight Prepaid.
9 Sold merchandise to various customer, P20,000.
10 Acquired Merchandise from Bonifacio Accessories, P35,000.
11 Sent a credit memo to Nena Delos Santos for goods returned with
defect, P750.
13 Received a cash refund, P600 from Bonifacio Accessories for the
defective goods returned.
15 Paid P15,000 to Repizo Trading as partial settlement of the account on
September 8.
16 Collected the full account from Nena Delos Santos.
17 Paid the full account to Repizo Trading for the September 8 transaction.
18 Sold goods to Jo Medina on account, P20,000. Terms 2/10, n/30
20 Paid the P3,500 miscellaneous expense.
22 Paid the salaries of employees, P18,000.
25 Sold merchandise to cash customers, P18,000.
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27 Purchased merchandise to Repizo Trading, P55,000 on account. Terms
2/10, n/30
30 Withdrew P12,000 for personal use.
30 Collected the full account from Jo Medina.
Acct. Acct. Account

Account
No. No.
110 Cash 410 Sales
120 Accounts Receivable 420 Sales Returns and Allowances
130 Supplies 430 Sales Discount
140 Merchandise Inventory 510 Purchases
150 Furniture and Fixture 520 Purchase Returns and Allowances
210 Accounts Payable 610 Freight In
220 Notes Payable 620 Freight Out
310 Dalangpan, Capital 630 Rent Expense
320 Dalangpan, Drawings 640 Salaries Expense
330 Income Summary 650 Miscellaneous Expense
your facilitator.
Assessment Method:
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CRITERIA YES NO

account?


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TASK SHEET 1.3.1-3b
Title: Journalizing of Single Proprietor Account Title (Merchandising Business)
Performance Objective: To journalize transactions for Jacky Enterprises using the

periodic inventory system.

Procedure:
On September 1, 2019, Jacky Ang established a business, Jacky Enterprises by

investing P350,000. The transactions for the September 2019, the first month of
the business are as follows:
Sept. 2 Paid the month’s rent, P15,000.

3 Purchased merchandise, P60,000 to Bonifacio Merchandise. Terms: FOB
Shipping Point.
4 Purchased furniture and fixtures P65,000. Jacky Ang issued a note
promising to pay at the end of the month.
Purchased supplies P15,000.
5 Paid the miscellaneous expense, P14,500.
6 Paid the transportation cost for the September 3 transaction.
8 Sold P27,000 goods to cash customers. The cost of goods is P16,200.
9 Purchase merchandise, P73,000 from Bonifacio Merchandise paying
P40,000 and remaining balance will be paid on this terms: 2/10,
n/eom.
10 Received a credit memo from Bonifacio Merchandise P900 for the
defective goods returned.
11 Sold P12,000 to Gina Salazar on account. The cost of goods sold is
P7,200 and the transportation cost amounts to 600. Terms: 2/10, n/30,
FOB Destination, Freight Prepaid.
13 Purchase office equipment, P19,000.
15 Paid salaries of employees, P10,000.
16 Withdrew P5,000 from the business for personal use.
17 Sold P18,000 to cash customers. The cost of goods sold is P10,800.
18 Refunded P200 to a customer who returned defective goods.
19 Paid the account to Bonifacio Merchandise in full for the September 9
transaction.
21 Collected the full account from Gina Salazar.
24 Purchased Merchandise from Ternate Store and General Merchandise,
P30,000.
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25 Sold goods to Lou Llaneta P9,000. Terms: 2/10, n/30
27 Purchases merchandise from Ternate Store and General Merchandise,
P15,000. Terms 2/10, n/30
28 Sold P39,000 goods to various customers.
29 Paid the insurance for one year and recorded it as Prepaid Insurance,
P24,000.
30 Paid in full the account on account in September 4 transaction.
Paid the salaries of employees P10,000.
Acct. Acct. Account

Account
No. No.
110 Cash 320 Ang, Drawings
120 Accounts Receivable 330 Income Summary
130 Supplies 410 Sales
140 Merchandise Inventory 420 Sales Returns and Allowances
150 Prepaid Insurance 430 Sales Discount
160 Furniture and Fixture 510 Freight Out
210 Accounts Payable 520 Rent Expense
220 Notes Payable 610 Salaries Expense
310 Ang, Capital 620 Miscellaneous Expense
your facilitator.
Assessment Method:
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CRITERIA YES NO

account?


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LEARNING OUTCOME 3.2 Prepare Journal Entry for Partnership
CONTENTS:
 Journalizing of partnership account titles
principles.
accounts.
transaction.

 CBLM
 Calculator
 Journal Paper
 Pencil
 Eraser
METHODOLOGIES:
 Discussion
ASSESSMENT METHODS:
 Written test
 Interview
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LEARNING EXPERIENCE
LEARNING OUTCOME 3.2: Prepare Journal Entry for Partnership

Journalizing of Partnership Account Title facilitator if you have concerns
on the lesson

Key No. 1.3.2-1

the next activity.
Journalizing of Partnership Account Title Performance Criteria Check List
No. 1.3.2-1a

Checklist
Journalizing of Partnership Account Title – Performance Criteria Check List
Partnership Dissolution No. 1.3.2-1b

Checklist
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JOURNALIZING OF PARTNERSHIP ACCOUNT TITLE
 Explain the advantages and disadvantages of partnership
 Identify the different types of partnership
 Journalize the formation of partnership.
 Journalize the admission of new partner
 Journalize the withdrawal of a partner from the partnership
 Journalize the dissolution process
Partnership
A partnership is a voluntary association of two or more legally competent persons

(persons who are of age and sound mental capacity) to carry on as co-owners a business
for profit. Because a partnership is based on agreement, no person can be a partner
against her or his will. Doctors, accountants, and lawyers frequently form partnerships,
and this form of business organization is common in small service and retail businesses.
Advantages of a partnership include that:
 two heads (or more) are better than one

 your business is easy to establish and start-up costs are low
 more capital is available for the business
 you’ll have greater borrowing capacity
 high-caliber employees can be made partners
 there is opportunity for income splitting, an advantage of particular importance
due to resultant tax savings
 partners’ business affairs are private
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 there is limited external regulation
 it’s easy to change your legal structure later if circumstances change.
Disadvantages of a partnership include that:
 the liability of the partners for the debts of the business is unlimited
 each partner is ‘jointly and severally’ liable for the partnership’s debts; that is,
each partner is liable for their share of the partnership debts as well as being
liable for all the debts
 there is a risk of disagreements and friction among partners and management
 each partner is an agent of the partnership and is liable for actions by other
partners
 if partners join or leave, you will probably have to value all the partnership
assets and this can be costly.
Types of Partnerships
There are several different types of partnerships, and differences can vary depending on
the state in which the business operates. Here are some general aspects of the three
most common types of partnerships.
 General Partnership
A general partnership is the default version of a partnership. Each partner

represents the organization and has equal right to participate in the
management, decision making and control of the business. In terms of risks and
returns, the assumption is that profits are distributed equally and liability is
shared equally. Debts or liabilities that impact the organization can be
distributed equally.
 Limited Partnership
A limited partnership involves one general partner with unlimited liability and
all other partners having limited liability. Limited partners often have limited
control over the company as well but this should be documented in the
partnership agreement. Limited partners are not usually involved in day-to-day
operations of the business. Profits are passed through to personal tax returns.
The general partner must pay self-employment taxes.
 Limited Liability Partnership
A limited liability partnership gives limited liability to every owner. This means
that each partner is protected from financial and legal mistakes of the other
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partners. As a result, a limited liability partnership has some elements of both
partnerships and corporations.
The Partnership Agreement
Before entering into a partnership it is advisable to have a lawyer prepare a formal

agreement outlining:
 each partner’s role and level of authority

 each partner’s financial contribution
 a procedure for resolving disputes
 a procedure for ending or resigning from the partnership.
It is important to have a formal agreement because personal liability is unlimited for

each partner.
You will be held liable for any shortfall if the business fails and a partner can’t afford to
pay their share of any debts. You are also jointly responsible for any debts your partner
incurs on behalf of the business, with or without your knowledge.
If there is no agreement in place, each partner is deemed to own equal shares of each
asset.
Journalizing of Partnership Account Title
 Start-up Journal Entries

Jan. 1 Rolly Pujanes and Ernie Gagno decided to form a partnership and put-up
a Ref and Aircon Maintenance Shop. Each partner invested P50,000 with
an equal sharing of profit and losses.
Entry

Cash 100,000
Gagno, Capital 50,000
Pujanes, Capital 50,000
Initial investment
 Admission of New Partner (No Bonus)
Whenever a new partner is admitted to the partnership, a new capital account

must be opened for him or her. This will allow the partnership to reflect the new
members of the partnership.
March 1 Rolly Pujanes decides to sell his interest in Ref and Aircon Maintenance
Shop to Justine Manuel. Since this is a personal transaction, the only entry
needed is the transfer of partner interest from Pujanes to Manuel.
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Entry

Manuel, Capital 50,000
Investment of new partner
No other entry needs to be made. Note that the entry is a paper transfer—
it is to move the balance in the capital account. The amount paid by
Manuel to Pujanes does not affect this entry.
If instead the new partner invests directly into the partnership, the
change increases the assets of the partnership as well as the capital
accounts. Suppose that, instead of buying Pujanes’ interest, Justine
Manuel joined the Gagno and Pujanes partnership by investing P50,000.
Entry

Cash 50,000
 Admission of New Partner (Bonus to Old Partners)
A bonus to the old partners can come about when the new partner’s investment
in the partnership creates an inequity in the capital of the new partnership, such
as when a new partner’s capital account is not proportionate to that of a previous
partner. Because a change in ownership of a partnership produces a new
partnership agreement, a bonus may be used to record the change in the
ownership capital to prevent inequities among the partners.
A bonus to the old partner or partners increases (or credits) their capital
balances. The amount of the increase depends on the income ratio before the
new partner’s admission.
March 1 Justine Manuel joined the Gagno and Pujanes partnership. Assume the
following information for the partnership on the day Manuel becomes a
partner.
Total capital of Ref and Aircon Maintenance Shop P100,000

Investment by new partner Justine Manuel 65,000
Total capital of partnership 165,000
Manuel’s capital credit (1/3 of P165,000) 55,000
Total bonus to Gagno and Pujanes 10,000
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To allocate bonus to Gagno and Pujanes (remember that they agreed to
have an equal sharing of profit and losses), make the following
calculations:
Gagno: (10,000 x 50%) = 5,000
Pujanes: (10,000 x 50%) = 5,000
Entry

Cash 65,000
 Admission of New Partner (Bonus to New Partner)
When the new partner’s investment may be less than his or her capital credit, a
bonus to the new partner may be considered. Sometimes the partnership is more
interested in the skills the new partner possesses than in any assets brought to
the business. For instance, the new partner may have expertise in a particular
field that would be beneficial to the partnership, or the new partner may be
famous and can draw attention to the partnership as a result. This frequently
happens with restaurants; many are named after sports celebrity partners. A
bonus to a newly admitted partner can also occur when the book values of assets
currently on the partnership’s books have a higher value than their fair market
values.
A bonus to a new admitted partner decreases (or debits) the capital balances of
the old partners. The amount of the decrease depends on the income ratio
defined by the old partnership agreement in place before the new partner’s
admission.
March 1 Justine Manuel joined the Gagno and Pujanes partnership. Assume the
following information for the partnership on the day Manuel becomes a
partner.
Total capital of Ref and Aircon Maintenance Shop P100,000

Investment by new partner Justine Manuel 35,000
Total capital of partnership 135,000
Manuel’s capital credit (1/3 of P135,000) 45,000
Total bonus to Manuel 10,000
To allocate bonus that each of the old partner contributes to new partner
(remember that they agreed to have an equal sharing of profit and losses), make
the following calculations:
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Gagno: (10,000 x 50%) = 5,000
Pujanes: (10,000 x 50%) = 5,000
Entry

Cash 35,000
 Withdrawal of Partner
Now, let’s explore the opposite situation—when a partner withdraws from a

partnership. Partners may withdraw by selling their equity in the business,
through retirement, or upon death. The withdrawal of a partner, just like the
admission of a new partner, dissolves the partnership, and a new agreement
must be reached. As with a new partner, only the economic effect of the change
in ownership is reflected on the books.
When existing partners buy out a retiring partner, the case is the opposite of
admitting a new partner, but the transaction is similar. The existing partners use
personal assets to acquire the withdrawing partner’s equity and, as a result, the
partnership’s assets are not affected. The only effect in the partnership’s records
is the change in capital accounts.
March 1 Rolly Pujanes decided to retire. Each partner has a capital balance of
P70,000. Ernie and Justine agree to pay Rolly P35,000 each to close out
his partnership account.
Entry

Withdrawal of partner
 Partnership Buys Out Withdrawing Partner
When a partnership buys out a withdrawing partner, the terms of the buy-out
should follow the partnership agreement. Using partnership assets to pay for a
withdrawing partner is the opposite of having a new partner invest in the
partnership. In accounting for the withdrawal by payment from partnership
assets, the partnership should consider the difference, if any, between the
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agreed-upon buy-out peso amount and the balance in the withdrawing partner’s
capital account. That difference is a bonus to the retiring partner.
This situation occurs when:
 The partnership’s fair market value of assets exceeds the book value.
 Goodwill resulting from the partnership has not been accounted for.
 The remaining partners urgently want the withdrawing partner to exit or
want to show their appreciation of the partner’s contributions.
The partnership debits (or reduces) the bonus from the remaining partners’
capital balances on the basis of their income ratio at the time of the buy-out.
March 1 Ref and Aircon Maintenance Shop appreciates the contribution of Rolly
Pujanes in the success of the business and would like to pay him a bonus.
Each partner has a capital balance of P60,000. The business intends to
pay Rolly P80,000 for his interest.
Entry

Cash 80,000
1. Calculate the amount of the bonus. This is done by subtracting Rolly’s

capital account balance from the cash payment: (P80,000 – P60,000) =
P20,000.
2. Allocate the cost of the bonus to the remaining partners on the basis of
their income ratio. This calculation comes to P10,000 each for Ernie
and Justine ($20,000 × 50%).
In some cases, the retiring partner may give a bonus to the remaining partners.
This can happen when:
 Recorded assets are overvalued.

 The partnership is not performing well.
 The partner urgently wants to leave the partnership
In these cases, the cash paid by the partnership to the retiring partner is less
than the balance in his or her capital account. As a result, the other partners
receive a bonus to their capital accounts based on the income-sharing ratio
established prior to the withdrawal.
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March 1 Each partner has a capital balance of P60,000. Rolly Pujanes has another
opportunity and decided to move on. He is willing to accept P50,000 cash
in order to retire.
Entry

Cash 50,000
1. Calculate the amount of the bonus. This is done by subtracting

Rolly’s capital account balance from the cash payment: (P80,000
– P60,000) = P20,000.
2. Allocate the cost of the bonus to the remaining partners on the
basis of their income ratio. This calculation comes to P10,000
each for Ernie and Justine ($20,000 × 50%).
Partnership Dissolution
The liquidation or dissolution process for partnerships is similar to the liquidation

process for corporations. Over a period of time, the partnership’s non-cash assets are
converted to cash, creditors are paid to the extent possible, and remaining funds, if any,
are distributed to the partners. Partnership liquidations differ from corporate
liquidations in some respects, however:
1. General partners, as you may recall, have unlimited liability. Any general partner
may be asked to contribute additional funds to the partnership if its assets are
insufficient to satisfy creditors’ claims.
2. If a general partner does not make good on his or her deficit capital balance, the
remaining partners must absorb that deficit balance. Absorption of the partner’s
deficit balance gives the absorbing partner legal recourse against the deficit
partner.
Recording the Dissolution Process
As discussed above, the liquidation or dissolution of a partnership is synonymous with

closing the business. This may occur due to mutual partner agreement to sell the
business, the death of a partner, or bankruptcy. Before proceeding with liquidation, the
partnership should complete the accounting cycle for its final operational period. This
will require closing the books with only balance sheet accounts remaining. Once that
process has been completed, four steps remain in the accounting for the liquidation,
each requiring an accounting entry. They are:
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Step 1: Sell noncash assets for cash and recognize a gain or loss on realization.
Realization is the sale of noncash assets for cash.
Step 2: Allocate the gain or loss from realization to the partners based on their
income ratios.
Step 3: Pay partnership liabilities in cash.
Step 4: Distribute any remaining cash to the partners on the basis of their capital
balances.
These steps must be performed in sequence. Partnerships must pay creditors prior to
distributing funds to partners. At liquidation, some partners may have a deficiency in
their capital accounts, or a debit balance.
Let us consider an example. J and J Partnership is liquidated; the following shows the
balance sheet after closing the book.
J,J and J Partnership

Balance Sheet
For the Month Ended December 31, 2019
Assets
Cash P 5,000
Inventory 22,000
Equipment 30,000
Accumulated Depreciation (5,000)
Total Assets P 62,000
Liabilities and Partner Capital

Notes Payable P 15,000
Bellen, Capital 15,000
Ang, Capital 10,000
Total Liabilities and Partner Capital P 62,000
The partners of J, J and J Partnership agree to liquidate the partnership on the following
terms:
1. All the partnership assets will be sold to Hockey Partnership for P60,000 cash.
2. The partnership will satisfy the liabilities.
3. The income ratio will be 3:2:1 to partners Bellen, Ang, and Manuel respectively.
(Another way of saying this is 3/6:2/6:1/6.)
4. The remaining cash will be distributed to the partners based on their capital
account basis.
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The journal entry to record the sale of assets to Hockey Partnership (Step 1) is as
shown:

Cash 60,000
Accumulated Depreciation 5,000
Inventory 22,000
Equipment 30,000
Gain on Realization 3,000
Sale of assets
Note: In case of Loss on Realization, entry is to be recorded on the debit side.
The journal entry to allocate the gain on realization among the partners’ capital
accounts in the income ratio of 3:2:1 to Bellen, Ang, and Manuel, respectively (Step 2),
is as shown:

Gain on Realization 3,000
Bellen, Capital (3/6 x 3,000) 1,500
Ang, Capital (2/6 x 3,000) 1,000
Manuel, Capital (1/6 x 3,000) 500
Allocation of gain to partners
The journal entry to pay off the liabilities (Step 3) is as shown:

Notes Payable 15,000
Cash 30,000
Payment of payables
The journal entry to distribute the remaining cash to the partners based on their capital
account basis (Step 4) is as shown:

Bellen, Capital 16,500
Ang, Capital 11,000
Cash 35,000
Allocation of gain to partners
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References: https://online.alvernia.edu/articles/types-of-partnerships/
https://www.smallbusiness.wa.gov.au/business-advice/business-
structure/partnership
https://openstax.org/books/principles-financial-accounting/pages/15-4-
prepare-journal-entries-to-record-the-admission-and-withdrawal-of-a-
partner
https://openstax.org/books/principles-financial-accounting/pages/15-5-
discuss-and-record-entries-for-the-dissolution-of-a-partnership
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Multiple Choice: Encircle the letter of the correct answer.

1. Which of the following is a disadvantage of the partnership form of organization?
a. limited life
b. no taxation at the partnership level
c. flexibility in business operations
d. combining of financial resources
2. Meryl and Lee are partners with capital balances of P60,000. They share profits and
losses at 50% each. Jacky contributes P30,000 to the partnership for a 1/3 share.
What amount should the partnership record as a bonus to Chris?
a. P20,000
b. P15,000
c. P10,500
d. P5,000
losses at 50%. Jacky contributes P30,000 to the partnership for a 1/3 share. What
amount should Meryl’s capital balance in the partnership be?
a. P60,000
b. P50,000
c. P45,000
d. P30,000
losses at 50%. Chris contributes P90,000 to the partnership for a 1/3 share. What
amount should the partnership record as an individual bonus to each of the old
partners?
a. P10,000
b. P7,000
c. P3,000
d. P20,000
5. When a partnership is dissolve, the first step in the dissolution is ________________.
a. allocate the gain or loss on sale based on income sharing ratio
b. pay off liabilities
c. sell noncash assets
d. divide the remaining cash among the partners
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ANSWER KEY 1.3.2-1
1. a
2. a
3. b
4. a
5. c
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TASK SHEET 1.3.2-1a
Title: Journalizing of Partnership Account Title
Performance Objective: To journalize transactions for Ang and Associates Accounting

Services.

Procedure:
On July 1, 2019, Emong Ang, CPA; Alvaro Tindoc, CPA and Eduardo Llaneta, CPA
agreed to form a partnership to establish an accounting firm named Ang and
Associates Accounting Services. Each partner agreed to contribute P70,000.
Profit and losses will be shared equally by each partner. The transactions for the
business are as follows:
July 2 Bought office equipments, P85,000. An initial payment of P35,000 was

made and issued a notes payable for the remaining amount.
3 Paid the office rental for the month, P15,000.
5 Purchase furnitures and fixture on account, P35,000.
7 Purchase office Supplies, P3,400.
10 Received P8,000 for an accounting services rendered to ABC Corp.
17 Billed Tantuco Enterprises P15,000 for the accounting services
rendered.
20 Paid the miscellaneous expenses, P 6,000.
23 Collected P15,000 from Tantuco Enterprises for the accounting services
rendered last July 17.
25 Rendered accounting services to various clients and collected P 45,000.
30 Paid the salary of the office clerks, P25,000.
Aug. 2 Paid P10,000 as the first installment for the account on July 2.
3 Paid the office rental for the month, P15,000.
4 Jerry Bellen, CPA joined the partnership and agreed to contribute
P90,000 for the ¼ share in the partnership.
9 Rendered an accounting service to a customer on account, P7,500.
15 Eduardo Llaneta needs to migrate to Canada so he decided to withdraw
from the partnership. He agreed to sell his interest to the partnership
by receiving P50,000 as settlement.
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b. Journalize the transactions using the following accounts.
Acct. Acct. Account

Account
No. No.
110 Cash 340 Bellen, Withdrawals
120 Accounts Receivable 350 Llaneta, Capital
130 Supplies 360 Llaneta, Withdrawals
140 Furniture and Fixture 370 Tindoc, Capital
150 Office Equipment 380 Tindoc, Withdrawals
210 Accounts Payable 410 Accounting Revenue
220 Notes Payable 510 Rent Expense
310 Ang, Capital 520 Salaries Expense
320 Ang, Withdrawals 530 Miscellaneous Expense
330 Bellen, Capital
your facilitator.
Assessment Method:
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CRITERIA YES NO

account?


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TASK SHEET 1.3.2-1b
Title: Journalizing of Partnership Account Title – Partnership Dissolution
Performance Objective: To journalize the dissolution of Havoc Partnership.

Procedure:
a. Given the balance sheet after closing entries below, journalize the dissolution of
Havoc Partnership. All assets of Havoc Partnership was bought by Saviour
Industries paying P110,000. Havoc Partnership shares profit and loss equally.
Havoc Partnership
Balance Sheet
For the Month Ended October 31, 2019
Assets
Cash P 15,000
Office Equipment 60,000
Accumulated Depreciation-Office Equipment (6,000)
Furniture and Fixture 30,000
Accumulated Depreciation-Furniture and Fixture (2,500)
Total Assets P121,000
Liabilities and Partnership Equity

Accounts Payable P 86,000
De Guia, Capital 17,500
Mandreza, Capital 17,500
Total Liabilities and Partnership Equity P121,000
b. Evaluate your work using the performance criteria checklist then submit it to
your facilitator.
Assessment Method:
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JOURNALIZING OF PARTNERSHIP ACCOUNT TITLE – PARTNERSHIP DISSOLUTION
CRITERIA YES NO
Did you record the liquidation of non-cash assets?
Did you record the allocation of the gain or loss from realization to the
partners based on their income ratios?
Did you record the payment of partnership liabilities?
Did you record the distribution of any remaining cash to the partners on
the basis of their capital balances?

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LEARNING OUTCOME 3.3 Prepare Journal Entry for Corporation
CONTENTS:
 Journalizing of partnership account titles
principles.
accounts.
transaction.

 CBLM
 Calculator
 Journal Paper
 Pencil
 Eraser
METHODOLOGIES:
 Discussion
ASSESSMENT METHODS:
 Written test
 Interview
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LEARNING EXPERIENCE
LEARNING OUTCOME 3.3: Prepare Journal Entry for Corporation

Journalizing of Corporation Account Title facilitator if you have concerns
on the lesson

Key No. 1.3.3-1

the next activity.
5. Perform the Task Sheet No. 1.3.3-1 Evaluate your performance using
Journalizing of Corporation Account Title Performance Criteria Check List
No. 1.3.3-1

Checklist
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JOURNALIZING OF CORPORATION ACCOUNT TITLE
 Explain the advantages and disadvantages of a corporation
 Journalize the reacquisition and issuance of common stocks
Corporation
A corporation is an entity recognized by law as possessing an existence separate and

distinct from its owners; that is, it is a separate legal entity. Endowed with many of the
rights and obligations possessed by a person, a corporation can enter into contracts in
its own name; buy, sell, or hold property; borrow money; hire and fire employees; and
sue and be sued.
Stockholders are the owners of the corporation. You become an owner by receiving
shares of stock in the company. Stockholders do not have the right to participate
actively in the management of the business unless they serve as directors and/or
officers. However, stockholders do have certain basic rights, including the right to:
 dispose of their shares
 buy additional newly issued shares in a proportion equal to the percentage of
shares they already own (called the preemptive right)
 share in dividends when declared
 share in assets in case of liquidation
 participate in management indirectly by voting at the stockholders’ meeting (one
vote for every share of stock).
Advantages of the corporate form of business
 Easy transfer of ownership. In a partnership, a partner cannot transfer

ownership in the business to another person if the other partners do not want
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the new person involved in the partnership. In a publicly held (owned by many
stockholders) corporation, shares of stock are traded on a stock exchange
between unknown parties; one owner usually cannot dictate to whom another
owner can or cannot sell shares.
 Limited liability. Each partner in a partnership is personally responsible for all
the debts of the business. In a corporation, the stockholders are not personally
responsible for its debts; the maximum amount a stockholder can lose is the
amount of his or her investment.
 Continuous existence of the entity. In a partnership, many circumstances, such
as the death of a partner, can terminate the business entity. These same
circumstances have no effect on a corporation because it is a legal entity,
separate and distinct from its owners.
 Easy capital generation. The easy transfer of ownership and the limited liability
of stockholders are attractive features to potential investors. Thus, it is relatively
easy for a corporation to raise capital by issuing shares of stock to many
investors. Corporations with thousands of stockholders are not uncommon.
 Professional management. Generally, the partners in a partnership are also the
managers of that business, regardless of whether they have the necessary
expertise to manage a business. In a publicly held corporation, most of the
owners (stockholders) do not participate in the day-to-day operations and
management of the entity. They hire professionals to run the business on a daily
basis.
 Separation of owners and entity (no mutual agency). Since the corporation is
a separate legal entity, the owners do not have the power to bind the corporation
to business contracts. This feature eliminates the potential problem of mutual
agency that exists between partners in a partnership. In a corporation, one
stockholder cannot jeopardize other stockholders through poor decision making.
The corporate form of business has the following disadvantages:
 Double taxation. Because a corporation is a separate legal entity, its net income
is subject to double taxation. The corporation pays a tax on its income, and
stockholders pay a tax on corporate income received as dividends.
 Government regulation. Because corporations are created by law, they are
subject to greater regulation and control than single proprietorships and
partnerships.
Common and Preferred Stock
All corporations have common stock. Common stock provides the following rights to
shareholders:
 sell or transfer any of their shares

 buy additional newly issued shares in a proportion equal to the percentage of
shares they already own (called the preemptive right),
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 receive a dividend when declared,
 receive a portion of any money left over after paying all debts in a liquidation,
and
 one vote for every share of stock.
It is important to note that shareholders cannot take money out of the business
whenever they want like owners could in a sole proprietorship or partnership.
Shareholders receive earnings of the company in the form of dividends which must be
declared by the board of directors.
There is some terminology we need to get familiar with for stock. These include:
 Authorized shares: Authorized share are the total number of shares we are
allowed to sell as specified in the corporate charter.
 Issued shares: Issued shares are the total number of share we have given out to
shareholders.
 Outstanding shares: Outstanding shares are the total number of shares
currently held by shareholders. Issues and outstanding shares will be different if
the company has treasury stock, which we will discuss later.
 Par value: Random value assigned to each share of stock in the corporate
charter.
 No par value: A par value was not assigned to each share of stock in the
corporate charter.
 Stated value: No par value stock (meaning no value was assigned to stock in the
charter) but the board of directors voted and determined a value for each share
of stock.
 Market value: Current value of a share of stock as determined by the stock
exchange.
Another type of stock some corporations may have is preferred stock. Preferred stock
has the same rights and terminology associated with common stock with a few
differences. Preferred stock is guaranteed a specific amount or rate of dividends each
year when dividends are declared. Preferred stockholders may give up their right to
vote.
Treasury stock
Treasury stock is the corporation’s own capital stock that it has issued and then
reacquired; this stock has not been canceled and is legally available for reissuance.
Because it has been issued, we cannot classify treasury stock as unissued stock. Instead,
treasury stock reduces shares outstanding but does not change shares issued.
A corporation may reacquire its own capital stock as treasury stock to (1) cancel and
retire the stock; (2) reissue the stock later at a higher price; (3) reduce the shares
outstanding and thereby increase earnings per share; or (4) issue the stock to
employees.
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If the intent of reacquisition is cancellation and retirement, the treasury shares exist
only until they are retired and canceled by a formal reduction of corporate capital.
Journalizing for Corporation Account Titles
 Issuance of Stocks
Each share of common or preferred capital stock either has a par value or lacks
one. The corporation’s charter determines the par value printed on the stock
certificates issued. Par value may be any amount—1 cent, 10 cents, 16 cents, P 1,
P5, or P100.
Par value gives no clue as to the stock’s market value. Shares with a par value of
P5 have traded (sold) in the market for more than P600, and many P100 par
value preferred stocks have traded for considerably less than par. Par value is
not even a reliable indicator of the price at which shares can be issued. New
corporations can issue shares at prices well in excess of par value or for less than
par value if state laws permit. Par value gives the accountant a constant amount
at which to record capital stock issuances in the capital stock accounts. As
stated earlier, the total par value of all issued shares is generally the legal capital
of the corporation.
Feb. 1 The company issues 10,000 shares of P25 par value common stock at P30
per share.
Entry

Cash 300,000
Common Stock 250,000
Paid-in Capital 50,000
Issuance of 10,000 shares of stock at
P30; cost per share P25
When issuing capital stock for property or services, companies must determine
the peso amount of the exchange. Accountants generally record the transaction
at the fair value of (1) the property or services received or (2) the stock issued,
whichever is more clearly evident.
To illustrate, assume that the owners of a tract of land deeded it to a corporation

in exchange for 1,000 shares of P600 par value common stock. The land had a
market value of P700,000. The required entry is:
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Land 700,000
Common Stock (1000 shares x P600) 600,000
Receipt of land for capital stock
As another example, assume a firm issues 100 shares of preferred stock with a
par value of P200 per share in exchange for legal services received in organizing
as a corporation. The attorney previously agreed to a price of P30,000 for these
legal services but decided to accept stock in lieu of cash. In this example, the
correct entry is:

Organization Cost 30,000
Common Stock (100 shares x P200) 20,000
Receipt of land for capital stock
 Reacquiring Common Stock
March 1 Malaya Corporation reacquired 100 shares of its outstanding common

stocks for P125 each.
Entry

Treasury Stock - Common 12,500
Cash 12,500
Acquired 100 shares of Treasury stock
at P125
 Reissuance of Treasury Stock
March 8 Malaya Corporation reissued 35 shares of its treasury stocks for P150
each.
Entry

Cash 3,900
Treasury Stock – Common 3,750
Paid-in Capital – Treasury Stock 150
Reissued 30 shares of treasury stock
at P130; cost per share P125
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When the reissue price of subsequent shares is less than the acquisition price,
firms debit the difference between cost and reissue price to Paid-In Capital —
Treasury Stock. This account, however, never develops a debit balance. By
definition, no paid-in capital account can have a debit balance. If Malaya
Corporation reissued 20 shares at P121 each on March 10, the entry will be:

Cash 2,400
Paid-in Capital – Treasury Stock 100
At this point, the credit balance in the Paid-In Capital—Common Treasury Stock
Transactions account would be P50 (P150 credit from March 8 – P100 debit
from March 10) . If the remaining 50 shares are reissued on April 12 , for P123
per share, the entry would be:

Cash 6,150
Paid-in Capital – Treasury Stock (P150-P100) 50
Retained Earnings {P6250-(P6150+P50)} 50
References: https://courses.lumenlearning.com/sac-finaccounting/chapter/
corporations/
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Direction: Answer the following questions. Write your answer on the space provided.
a. It is the corporation’s own capital stock that is issued and then reacquired.
________________________________________________________
b. The owner of the corporation is called ___________________________.
c. What are the disadvantages of corporation?
________________________________________________________
_______________________________________________________
d. It is the total number of shares that are allowed to sell as specified in the
corporate charter.
________________________________________________________
e. It refers to the random value assigned to each share of stock in the corporate
charter.
________________________________________________________
f. What are the advantages of the corporate form of business?
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
g. It is the current value of a share of stock as determined by the stock exchange.
________________________________________________________
h. It is a stock that is guaranteed a specific amount or rate of dividends each year
when dividends are declared.
________________________________________________________
i. It is an entity recognized by law as possessing an existence separate and distinct
from its owners.
________________________________________________________
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ANSWER KEY 1.3.3-1
a. Treasury Stock
b. Stockholder
c. Double taxation
Government regulation
d. Authorized shares
e. Par value
f. Easy transfer of ownership
Limited liability
Continuous existence of the entity
Easy capital generation
Professional management
Separation of owners and entity
g. Market value.
h. Preferred Stock
i. Corporation
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TASK SHEET 1.3.3-1
Title: Journalizing of Corporation Account Title
Performance Objective: To journalize transactions involving issuance and

reacquisition of stocks.

Procedure:
a. Write the journal entry for the following cases.
Case 1: Cerdan Company issued 10,000 shares of common stock for P

1,120,000 cash. The common stock has a par value of P100 per share.
Give the journal entry for the stock issuance.
Case 2: Kelly Company had outstanding 50,000 shares of P20 stated value
common stock, all issued at P24 per share, and had retained earnings
of P800,000. The company reacquired 2,000 shares of its stock for
cash at book value from the widow of a deceased stockholder.
a. Give the entry to record the reacquisition of the stock.

b. Give the entry to record the subsequent reissuance of this stock at
P50 per share.
c. Give the entry required if the stock is instead reissued at P30 per
share and there were no prior treasury stock transactions.
Case 3: On 2019 October 27, Hi-Tech Company was authorized to issue

250,000 shares of P24 par value common stock. It then completed the
following transactions:
Nov. 9 Issued 45,000 shares of common stock at $ 30 per share for
cash.
13 Gave the promoters of the corporation 25,000 shares of
common stock for their services in organizing the company.
The board of directors valued these services at P744,000.
20 Exchanged 50,000 shares of common stock for the following
assets at the indicated fair market values:
Land – P216,000
Building – 528,000
Machinery – 720,000
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Prepare the journal entries to record the transactions
Case 4: Grand Corporation owes a trade creditor P30,000 on open account

which the corporation does not have sufficient cash to pay. The trade
creditor suggests that Grand Corporation issue to him 750 shares of
the P24 par value common stock, which is currently selling on the
market at P40. Present the entry or entries that should be made on
Grand Corporation’s books.
b. Evaluate your work using the performance criteria checklist then submit it to
your facilitator.
Assessment Method:
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PERFORMANCE CRITERIA CHECKLIST 1.3.3-1
CRITERIA YES NO

account?


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BKP CBLM Core Journalize Transactions

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COMPETENCY - BASED LEARNING MATERIALS

Qualification: BOOKKEEPING NC III

A Certificate of Achievement will be awarded to you after passing the evaluation.

No. Unit of Competency Module Title Code

1 Journalize Transactions Journalizing transactions HCS412301

2 Post transactions Posting transactions HCS412302

Preparing trial balance

Prepare financial reports Preparing financial reports

Review internal control Reviewing internal control

QUALIFICATION: BOOKKEEPING NC III

UNIT OF COMPETENCY : Journalize Transactions

NOMINAL DURATION : 138 hours

LEARNING OUTCOMES: Upon completion of this module the students/trainees will be

LO1. Prepare chart of account

LO2. Analyze documents

LO3. Prepare journal entry

CONDITIONS:(Tools, equipment, s/m, references/materials)

Learning Activities Special Instructions

2. Answer Self Check No. 1.1-1 Compare answers with Answer

You must answer all questions

3. Read Information Sheet 1.1-2 on Basic Financial

4. Answer Self Check No. 1.1-2 Compare answers with Answer

You must answer all questions

5. Read Information Sheet 1.1-3 on Basic Accounting

6. Answer Self Check No. 1.1-3 Compare answers with Answer

You must answer all questions

After reading this information sheet, you should be able to:

Business is an undertaking or venture for the purpose of making a gain or profit. To

The succeeding lesson discusses concept of bookkeeping and accounting in relation to

Accounting and Bookkeeping

Accounting is the art of recording, classifying, and summarizing in significant manner

The Four Phases Of Accounting

Accounting has four phases, namely Recording, Classifying, Summarizing, and

 Summarizing – After each accounting period, data recorded are summarized

 Interpreting – These are the accountant’s interpretation on the financial

 Recording of financial transactions

The primary function of Accounting is to record the transactions in the journal as

 Finding net results

So preparation of income statement is treated as one of the important functions

 Exhibiting financial affairs

Preparation of balance sheet is one of the functions of the special importance of

 Analyzing financial data

From this information, a clear conception is achieved regarding the capability of

This can be ascertained through ratio- analysis.

 Communicating financial information

Interested parties related to the business organization such as owners,

One of the primary functions of Accounting is to provide them with information

Bookkeeping is the process of recording daily transactions in a consistent way, and is a

The Four Main Functions of Bookkeeping

Recording expense is the most important function of bookkeeping. At its heart

Recording transactions is important because business owners need to be able to

 Manage Accounts Receivable

Managing accounts receivable is important because many businesses do not get

 Manage Accounts Payable.

The Accounts Payable is another main function of bookkeeping. Unlike

The balance sheet is a collection of all the assets and liabilities of a

o Cash Flow Statement

o The Profit and Loss

Types of Business Organization

 Partnership. A partnership is a business owned and operated by two or more

Types of Business Activities

 Merchandising. Merchandising companies purchase goods that are ready for

 Manufacturing. Manufacturing companies buy raw materials; convert them